Question on using private investors money.

[Joshua Sanchez]

I was reading in blog post http://www.biggerpockets.com/renewsblog/2013/06/25/buy-a-house-with-2000-or-less/

In it it talked about using private money. I know people that have lots of money but do not have the time to invest or know what to invest in. I want to know how it works and what I mean is if i approach an investor and tell them that I invest in RE and am looking for funding and I will pay them x % return on their money. Would I be issuing them a promissory only or am i supposed to put them on the deed or what im lost on this. Also would it be for 1 year or 5 year or what is the standard length for these kinds of deals?

Thank you
Josh

[Jon Holdman]

Paperwork wise, you would typically have a promissory note and a deed of trust, mortgage or whatever security instrument is used in your state. The security instrument is recorded and gives them a security interest, but not ownership, in the property. That gives the lender the right to foreclose if you don't pay. The promissory note isn't recorded. It contains all the details about the loan.

As far as terms, there is no standard. It depends on what your trying to do and what the lender is willing to do. If you're doing fix and flips, it would generally be shorter term. If you want to use private money for buy and hold, you would want a longer term.