Lending money to a General contractor

[Venu Vedre]

Any thougths are appreciated. Here is the background:

Background:

I met a General contractor a few years ago through a local RE meetup in Charlotte NC area. I have seen his work onsite and He is very good at what he does and has completed lot of townhome projects recently.

He currently has a investment opportunity that i am interested in . He is building a townhome product and is looking for investors to close the property and for pre-construction development and for securing construction loan. This loan is structured as debt(and not equity) with a decent annual rate of return.

Question:

I have never loaned money directly to a GC before. What is the best way to make sure my Loan is secure.

Looked up a few posts online and sounds like a couple options are 1) joint-tenancy on title, or 2) a deed of trust. I dont quite understand the pros and cons of each , or is there a better way to structure this.

Planning to reach out to a few local RE attorneys but wanted to get thoughts here as well.

Thanks,

Venu

[David M.]

@Venu Vedre

well option #1 basically means you take Title with the contractor.  Having ownership in the property is a 'little bit more' than just lending I'd say.

option #2 Deed of Trust is possible if its it legal in North Carolina.  Some States use a Deed of Trust and other just file a lien.  In the former, if borrower is late on their payments or basically breaches the contract/agreement, the Title is already in a Trust so you can take Title to the property without going to court as I recall.  Otherwise, the other system is the typical foreclosure process where you have to go to court to foreclose and take Title (with getting possession another issue).

If its a straight loan, just treat it like a loan.  Create a Note (the I.O.U) and record it with the County which creates the lien.  make sure you find out if you will be the 1st or 2nd position lien.

Of course, consult a qualifed professional or two to get the particulars of the document correct.  Good luck.