First time questions regarding lending money for fix and flip*

[Chad Herring]

I've decided to become a private money lender for a fix and flip investor. I've done my best to research the process but wanted to get additional guidance. I'd like to loan around $25k to start, but I'm undecided on loan terms, so any guidance in that area would be great. It seems like interest rates are most common, so that's what I'm leaning towards, but is the ball in my court regarding the terms or in the investor's? Additional questions are regarding the legal process: Do I need an attorney? Do I need to set up an LLC? 

*Reposted from another forum. 

[Ronald Isgate]

Hi Chad,

Real Estate Attorney here. I represent private money lenders and do several loan transactions a week. If this will be an ongoing business, I suggest you set up an LLC. I would highly recommend that you speak with an attorney that does this on a regular basis to ensure you are protected and to ensure the loan docs are legally binding - the loan docs are of course key to ensure that you have documents you can execute on in the event of a default (mortgage, note, assignment of rents, personal guarantee, etc.).

The lender dictates the terms. You need to determine what rate of return you would like to make it worth it for you (while of course keeping in mind what the market rates are in your area for interest rate and points - in the Phila area you can generally expect private loans to be in the 11-14% range and 2-4 points - but there are a lot of factors that go into the rate such as LTV, strength and experience of the borrower, 1st position vs. 2nd position, and so on).