Private Money - how to structure relationship?

[Account Closed]

Looking to make my first purchase and may have the option of taking private money. From what I've found, many people don't advise a newbie to go the private money way. Assuming you did go that way, how do you structure the relationship to secure a mortgage without disqualifying yourself? I seems as if you do it the wrong way, private money is viewed as a loan and therefore not considered available for a down payment. Although I'm not 100% sure how I want to structure the business, I know I'll want to remain in control (as much as possible) of it even in the instance I have investors. Hose investors in mind today will most likely want to sit back and get some sort of income stream. The less involved the better. Help?

[Art G.]

I am confused by your exit strategy.... Do you plan to rehab and resale with 100% private money? Or rent it out and take a mortgage with private money as down? 

First of all, the experience level of the investor needs to be considered. If they have done this a lot you are fine. If its their first time as well, expect to be on the phone with them more than working.

If this is a 100% finance with investor, then you are going to take the terms they offer you. So you must get the house at 70% ARV less rehab. That will account for the interest to investor.

If you plan to use private money as the down, and mortgage the rest and rent it. Then your agreement with private lender should be as an equity partner. That means they put in the money as down, you get mortgage, you split rent profits 50/50. At resale they get their money back, then you split profits 50/50. Form an LLC with both of you as owners, write up agreement, use a lawyer, get the home. Advantage to investor is that risk is lowered by you taking loan out, and you brought them the deal. Advantage to you is no money out of pocket. Safer for all, profits for all. Split profits, split risk.

Always remember to vet the money just as hard as they vet you. Last thing you need is someone freaking out in the middle of your project....