Need help approaching a family friend for private lending

[Blaine Cox]

So I need some help on a 1st grade level.....  There is a family friend I want to approach in regards to private money/private lending.  I've heard a lot about this but I haven't really seen it dumbed down on how it works.  For example purposes let's say family friend lends $100,000 for a project/projects.  How is this set up?  Does he take first position like a hard money lender would, but without the points?  If its multiple projects how would that part work?Would it be interest only payments, etc, etc...  I keep hearing that its a good deal on both ends; me to gain capital, and him to make better interest than the stock market.  

My confusion lies within the financing.  If we were to agree on 8 to 10%, is that interest only payments?  Do you guys use this private money as a revolving line of credit?  I just want to be able to present this to him broken down to every detail.....  

Thank you in advance!

[Zachary Richards]

You can do whatever you both agree to. But please please have him find an attorney that knows private lending. Even though he's a family friend, things can go wrong and you could still be sued. 

He'll want a first-position lien on the property, personal guarantee, and you'll likely need to purchase the property in an entity (such as an LLC). You will also want to have insurance on the property and also pay for your lender to have a lender's title policy. These are all things a good attorney will know. For multiple projects I would do a separate loan for each property.

Typically payments are interest only, and you can agree to pay points or not. You should expect to cover all of the attorney's document prep fees as well. 

See if he'd be willing to lend to you out of a self-directed IRA, that will let him avoid paying income taxes on the interest income now.