Lending Gap Funds with 2nd TD and Shared Appreciation Mortgage

[Manuel Angeles]

Hello Everyone,

This question is directed to Private Money Lenders...

How many of you lend gap funds to other Investors ?

Scenario:

A Borrower has a hard money loan for 80% Purchase + 100% Rehab...
and looking for us to fund the remaining 20% Purchase Down Payment.

Purchase: $1m
Rehab Costs $200k
ARV $1.8m

How do you structure your subordinate debt on fix and flips ?

What interest rate or equity-share % would you propose to Borrower:

1. Straight Debt for 20% Gap
   at 15% interest and 2pt subordination (2pts on 1st TD and 2pts on my 2nd TD)
   or 
2. 50% Shared Appreciation Mortgage...
   50-50 net profit splits once project is completed
   Borrower gets reimbursed all capital for debt service, then net profit is split 50-50
   or
3. Both 15% and 50-50 SAM...
   Borrower pays 15% interest and 2pts subordination during course of the project...
   once project is completed, share 50-50 net profit with Borrower.