Structuring private money funding

[Phillip Davis]

Hello all,

I have recently been approached by family members as my business starts to grow about them lending money to me.  They are interested in the returns and not in the hands on parts of the business. I was thinking about offering 12% interest only payments on a 12 month term as I am using the brrrr method and will refi out to pay off the loan. 1 member asked me about some sort of collateral like name on the title which i said i didnt want to do, but it made me think what about some sort of lein on the property during the loan? Does anyone have experience with this? How to structure it? Thanks

[Randy Thomason]

You are on the right track Phillip.  If you put them on title they own part of the deal and will get their prorated portion back at closing.

They are the bank. Do a loan and have the title company file all the doc's just like they would a bank loan.  The lender is secured and will be paid at sale closing by the title company from your sale funds. Make sure you list the lender as such on the insurance policy so in the event of a fire or other disaster they get their money first.  

Keep you lenders secured and tell them that their security comes before everything else.  If they sleep well and you pay as agreed they will keep lending and maybe give you more money in the future.

Why pay 12% ?

If they put their money in the bank they get .5 to 1% interest.  Ask them what they think is a good return since the bank is offering them 1%.  They might say 5% or 8%. I probably would not go higher than 10 unless you don't have any other options at the moment.  If you start high then you will never get them to go lower.  If you start low you can always go higher, if need be.

Money is everywhere, you just have to ask and find it.  It is hidden from plain view to keep people from begging everyday.

Happy hunting!