Is it possible to purchase with multiple private lenders?

Question

I have been doing some research on private lending recently. Everything I have found is related to finding one person with money to fund the deal. You would then put their name on title and on insurance to cover their investment.

I am wondering though, has anyone here funded a deal through multiple private lenders? For example, let's say I find a house for $80k and it needs $20k in rehab. If I knew 5 people each having $20k, that would be enough to purchase and fix the property. It doesn't seem feasible though to put 5 people on title and insurance. How would the liens be ordered for each investor for example? Maybe as an alternative it makes more sense signing promissory notes for each person and then just buying the house myself. But then how do the investors get security in the deal? I'm also not sure if this falls into some syndication category and becomes very complicated.

If anyone has any experience structuring such a deal, I would really love to hear the details. Thanks.

Nick Wing · Answer

Look into fractionalizing the Note, just like Account Closed said. We are able to do that in California.  Multiple people have a designated interest in the note. Lets say Investor 1 puts in 40% of the loan, Investor 2 puts in 60%; if you default, investor 1 will get 40% of the default judgement amount or proceeds from foreclosure sale, and investor 2 will get 60%.

Justin Young · Answer

How does an LLC get funding? Is it as simple as forming a business bank account linked to the LLC which then funnels transactions to and from the LLC? Is there any interest that needs to be paid for the funds coming out of the LLC to pay back the lender(s)?

Frank Buono · Answer

I agree... I think the easiest way is to have them form an LLC. Then borrow from the LLC.

Jon Holdman · Answer

IMHO your first assumption is flawed.  I would treat the private lender as a lender.  They're NOT on title.  Instead, you (borrower) give them a mortgage or deed of trust.  Which depends on the state.  And you have a promissory note outlining the terms of the loan.  The mortgage or DOT gives them a security interest in the property.  And, yes, they would be named on the insurance policy.

Now, if you could get, say, two lenders then one could be in first position and the other in second.  That's still do-able with five.  But, I would never make a loan in second position, let alone fifth.  And if I was in first position, I would really not want you to have any loans behind me because it makes my life difficult if you default.

A better approach would be to have the five investors form an entity.  Then they put the money into the entity and the entity makes the loan to you.  You SHOULD NOT be involved in forming that entity.  I have done this as a lender with one other person.

If, OTOH, you form an entity, have these five people put your money in and then buy a house in that entity you are now in the business of "selling securities".  That's do-able. Its a big deal, though, and will require a lot of money for the legal aspects of it.  I've been told around $25K, but others have said it can be done for $10K.  This is a "private placement".

Better to find one investor to give you one loan on a property.

Realize that even if you find you $80/$20K deal and you find investors to lend you $100K you will still need cash of your own.  If they want payments monthly (I do, when lending) you will need something like $12-15K of your own cash for the up front costs and payments.  And if you go over budget you'll need cash for that.  If your investors are savvy they will want to see progress on the rehab before handing over all the rehab money.

Account Closed · Answer

In my state you can have up to 10 lenders on the same note, all in first position.  It's called a fractionalized or multi-lender loan.  It's an exception to securities laws regulated by the state Bureau of Real Estate originated by a broker.

Curt Davis · Answer

I would strongly advise against having multiple lenders and honestly, I dont know of a private lender who will lend against a property if other lenders are involved.

One lender will be in the 1st position and all others in order.

You should not have trouble finding a lender to fund the whole project/transaction.

Syndication I believe is if you were pooling all the lenders money together into one account but what your doing sounds like they are not giving money to your syndication.

Is it possible to purchase with multiple private lenders?

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