Private money lending advice

[Paul Altman]

Hi

I am considering loaning money in a situation where I would be getting 35-40% of the profit and also a preferred interest rate on my money. This would more so be a partner situation so not lending to strictly a borrower.

I would be funding the entire project which would come out to around $175k - $200k including purchase and repairs.

I have never lent private money before and would appreciate some advice from some of you guys out there with experience in this area.

Just want a quick explanation of the basic steps i should take in this process.

Ex.

1 Contracts/documentation to make sure is in place

2 How to be prepared legally

3 Best ways to make sure investment is protected

4 Making sure no one can run away with the money.

5 How ownership of property should be held

6 Dos donts etc

I have heard that securing your money with your name on the deed of trust isnt always good bc of certain risks.

Any advice much appreciated.

Thanks

[Faith Brashear]

I think if you are looking to be a passive investor you may want to talk to places like Iplan or Equity Trust or perhaps just deal with tax lien certificates. You have to know the property you are investing your money into. Investing in Real Estate if it from a Capital source or a developer is fine as long as you are prepared to do your due diligence. Read and more importantly understand everything. You are paying the attorney to also explain legal loopholes, in addition to contract verbiage. I would pull a title report on the property to see what is going on. I would run comps/ rental reports to make sure I could offset the investment. I would check to make sure the taxes were up to date, and I certainly would have something that has an acceleration clause.

You need to be the priority lien holder and do not subordinate under any circumstance and run it though a reputable title company to ensure clear title. You can use the title company to foreclose if your terms are not met.

Personally, if I were starting off brand new, I would open an WY LLC (Cheepest and easiest, pay a registered fee to have a local address) to give you an added layer of protection. Set it up with a SEP Ira contribution plan so that I could transfer 25% of whatever earned up to $51k into a Roth Ira, then invest out of there after creating a living trust. Create a joint venture within the trust to fund in the project so that this investor would put up the risk after being directly qualified with the peer to peer funding group so that I could utilize my own funds elsewhere. Take an interest profit as a hard money lender then take the joint profit on the sale without getting taxed.

That's just me...