Private Money Lending: Scaling Partnerships

[Jennie Berger]

Hello BP!

I have a growing community of friends / colleagues / et al who are interested in putting their money to work passively by private lending. I've been in the private lending space for about 1 year, and have lent on 3 projects to date. I have connected with many borrowers who are asking me to lend on their deals, and while many of these deals sound very attractive, I'm limited in my own source of funds, hence the reason for this post.

Background: I've been a designer and developer for the last 5.5 years, specializing in large gut renovations and ground up construction of single family homes and small multi unit buildings in the city of Chicago. I own and operate a few rentals, both mid term furnished and long term unfurnished, in 3 different states. I am an Illinois licensed real estate agent (mainly used for my own developments).

My Role in these private lending partnerships: Source and vet the borrowers, underwrite deals, originate, manage and service the loan, be a fiduciary. 

Context: Currently I lend in both my own LLC (just me, sole owner), and in a separate LLC (JV between one of my capital partners and me). This works well, but seeing as new people want to come on board, I don't believe creating a new LLC for each new capital partner makes sense, nor is it scalable.

To clarify: I am NOT looking to pool funds or syndicate at this time. Merely to lend more borrowers money on more of their rehab / flip deals, as well as offer transactional funding for same day double closes.  In essence - each new capital partner would lend only on one deal with me. I will NOT be mingling funds from multiple partners on the same deal.

Locations: Over the last year, I have lent only in Chicago IL, where I'm presently based. I'd like to start lending in other states - Texas, Florida, and maybe some others as well as Chicago.

Goal: Before presenting these lending opportunities to new capital partners, I'm hoping to glean more insight into the wisest, most efficient way to structure these partnerships to protect everyone involved. I've read/learned a little bit about: Partnership lending, table / wholesale funding, fractional notes, lending trusts, note on note. 

> Is one of these the best option? 

> What other options are there that are streamlined and will protect everyone involved?

> Which type of attorney I'd need to hire to draw up a legal document(s) for this type of partnership?

Thanks so much in advance for your wisdom and advice!

[Chris Seveney]

Quote from @Jennie Berger:

Hello BP!

I have a growing community of friends / colleagues / et al who are interested in putting their money to work passively by private lending. I've been in the private lending space for about 1 year, and have lent on 3 projects to date. I have connected with many borrowers who are asking me to lend on their deals, and while many of these deals sound very attractive, I'm limited in my own source of funds, hence the reason for this post.

Background: I've been a designer and developer for the last 5.5 years, specializing in large gut renovations and ground up construction of single family homes and small multi unit buildings in the city of Chicago. I own and operate a few rentals, both mid term furnished and long term unfurnished, in 3 different states. I am an Illinois licensed real estate agent (mainly used for my own developments).

My Role in these private lending partnerships: Source and vet the borrowers, underwrite deals, originate, manage and service the loan, be a fiduciary. 

Context: Currently I lend in both my own LLC (just me, sole owner), and in a separate LLC (JV between one of my capital partners and me). This works well, but seeing as new people want to come on board, I don't believe creating a new LLC for each new capital partner makes sense, nor is it scalable.

To clarify: I am NOT looking to pool funds or syndicate at this time. Merely to lend more borrowers money on more of their rehab / flip deals, as well as offer transactional funding for same day double closes.  In essence - each new capital partner would lend only on one deal with me. I will NOT be mingling funds from multiple partners on the same deal.

Locations: Over the last year, I have lent only in Chicago IL, where I'm presently based. I'd like to start lending in other states - Texas, Florida, and maybe some others as well as Chicago.

Goal: Before presenting these lending opportunities to new capital partners, I'm hoping to glean more insight into the wisest, most efficient way to structure these partnerships to protect everyone involved. I've read/learned a little bit about: Partnership lending, table / wholesale funding, fractional notes, lending trusts, note on note. 

> Is one of these the best option? 

> What other options are there that are streamlined and will protect everyone involved?

> Which type of attorney I'd need to hire to draw up a legal document(s) for this type of partnership?

Thanks so much in advance for your wisdom and advice!

 Here is what I would do:

Take the existing LLC and do a participation agreement with them on that specific deal. So your entity would still be the lender, but you have a participation agreement on the loan.

This will not be syndicating and should keep you out of hot water with SEC etc (note not an attorney but do participation agreements all the time). 

Note that the partners agreement is not recorded but they receive a partial assignment and allonge from you.