Private money loan to investor for property in California

[Myriam Keaton]

Hello,

I have a lending opportunity coming my way. I'm new to this and I'm not sure of all the precautions I need to take, apart from running the numbers on the property, and working with an investor who has a solid track record (which he has) to make sure this venture is successful. 
I would be a second lean on the deal for 100k

What do I need to know or what actions/precautions do I need to make in order to take an informed and educated decision? 

Thanks!

[Brad S.]

Quote from @Myriam Keaton:

Hello,

I have a lending opportunity coming my way. I'm new to this and I'm not sure of all the precautions I need to take, apart from running the numbers on the property, and working with an investor who has a solid track record (which he has) to make sure this venture is successful. 
I would be a second lean on the deal for 100k

What do I need to know or what actions/precautions do I need to make in order to take an informed and educated decision? 

Thanks!

**************************************************
Hey @Myriam Keaton, I am a very experienced professional (Appraiser, Broker, investor, long time ago Mortgage Broker), but I have not been a hard-money lender yet. I have been a hml borrower many times though. 

Basically, my advice would be to go through a licensed mortgage broker, who is familiar with the process. I can refer you to one if you like.

But, generally:
1) Only loan on investment property and not owner-occupied properties (they are governed by different laws in CA)
2) Always get a title insurance policy and go through escrow (this typically gets charged to the borrower)
3) get an appraisal, if you are at all unsure of the value.
4) Make sure to "verify" their solid track record (check referrals, previous deals, etc)
5) Always run a credit check - They don't necessarily need great credit, but this may give you some insight into some precautionary facts. For example, if they have had recent trouble making payments on their personal home mortgage recently, then what would happen if the deal you are loaning on goes south.
6) Make sure the ltv (loan to value) is comfortably low enough for you (maybe 60% or lower). Remember if something goes south, you may have to keep paying the 1st loan and any other liens (mechanics liens, tax liens, etc) in order to take control of the property and protect your interest. Or if the market decreases in that area or if the property is demo'd and in worse shape than when you loaned on it, etc. You basically want to make sure you have enough room there to reduce your risk. One of my hml had one of their borrowers (an operator) pass away during their rehab. They had to fly out of state to the project and coordinate the completion themselves - so make sure it is worth it.
7) Provide the money in stages - purchase funds at first (through escrow) and portion any rehab funds as needed or agreed based on either predetermined completed phases or professional progress inspections. I just remembered this is a second, so this is probably not for purchase funds, but the rest of the principle may apply.
8) Have a solid agreement and note for them to sign. Typically have an attorney prepare it. This should have many provisions in it to cover you. I may be able to look up a relatively recent one i have (as a Borrower), but I'd have to see if I could blank out any specific info, before I share it.

Also, what terms are you getting/thinking of? (i.e. interest rate, up-front points, length of loan, extension time and cost, etc?)

And what general area is the project in? Are you also in that area?

That's all I have for now. Good luck

Disclaimer
....oh, and as always and the most important - NEVER make any decisions solely based on anything you read, hear, etc, on any social media sight, including BP and including me! None of this should be considered to be specific advice to your situation or otherwise.  :)