Private Money Concern

[Derek T.]

I have a friend who has been offering to lend a small amount of money ($20k-$30k) for my rehab projects. I have been ignoring him because I am kind of scared of the unknown since currently I use HML and personal funds for financing. Well I finally set up a meeting with him and his wife for this weekend. What questions or dialogue should I be concerned about? I am going to talk to my lawyer as well but I figured I would get some free legal advice from the experienced rehabbers first.

Basically my plan is to show him some of my rehabs in progress, explain how the business works, how I would use his money, how it is protected, etc. My plans are to use his money in combination with HML to do another deal a two a quarter at a 12% interest rate. Since I am using HML they will have a 1st position lien on the property, so can I secure the $30k with just a personal guarantee? Also what else should I consider for this meeting.....documentation, potential questions, presentation material, etc? Thanks.

[Dion DePaoli]

The HML may not allow subordinate financing. Do not assume they will. In addition, the HML may have a different underwriting outlook on you using borrowed funds depending on what they look at in underwriting. Since the HML is the primary capital, you should sort these concepts out with the HML first so you understand what you can and can not do with the lender who provides you the majority of the funds.

It goes without mention, hopeful you are also reviewing the economic impact to your bottom line of borrowing additional funds, paying interest or return on them. Just because you can get more money, does not always mean you should use it.