Private Lender Question

[Colby Litzenberger]

Hi all - 

I have a private lender that told me to write out a proposal for her to be my bank on my first investment.  I have a question for BP.  I would like to use the private money to purchase the property and fund part of the rehab.  I am wondering how I structure the deal since the backing for the loan will be the property?  

Since I will be paying cash for the property I will need that on hand in order to make the purchase, but I wouldn't ask her to give me any cash if there isn't a property to back up her loan.  I know I am over thinking this, but I can't get it straight in my head.  I would appreciate if anyone could help a newbie out...

[Greg F.]

Here is what I would do.First you have the cash to buy the property. And then you are going to use private money to fund part of the rehab. I would use part of the private money to fund the purchase of the property, and pay cash for the rehab. Just like Dell said above. There are certain things that should be in place to make sure your private lender´s loan is secured and insured.

Promissory Note – If you do not have one you can find examples online.

The Deed – Their name should be on the Deed since the helped purchase the property, either first or second on the deed.

Insurance – Again they should be first payee or second payee.

Once the property is sold you should have them sign a release of promissory note. Stating that the note is paid in full and all terms were meet.