Structuring Private money + HML

[Daniel D.]

Hey Everyone, 

I'm trying to minimize using all of my money for down payments on my Fix and Flip deals. I have a good amount of capital from friends/family/associates that I can tap into. How do I structure the deal where for example I need to put a $200,000.00 down payment, I put in $80K of my own, I raise the other $120K, and the hard money lender finances the rest?

I'm trying to make sure all of my investors are protected. What is the proper way to go about this? 

Thanks

Daniel

[Mark Munson]

Hi @Daniel D.

      Most HMLs are going to want to be in first position and many are going to want you to have "skin in the game", meaning they won't want you attaching a 2nd lien at the time of closing. You can potentially record a 2nd lien, protecting the other investors, after the 1st is recorded, but if the 1st lienholder finds out they may freeze your rehab holdback account. You could do a silent second, but make sure you have a good title company or attorney to walk you through that. 

It would be helpful to know what the investors are getting in return. Are you just paying them interest or are they getting an equitable share in the profits? If the latter, you may just want to form an LLC with them and outline their respective shares in an Operating Agreement. Feel free to reach out if you need more guidance.