Private Money Question

[Eric Baum]

Hi All,

Hope everyone is having a great week.  I wanted to see if I can leverage some of the great insight and experience of such a talented community.

I have been actively growing my real estate portfolio and operations over the last several years and have businesses focused on different markets such as Chicago, Charlotte, Memphis, Philly, etc.   Like most here, over the years I made many of the classis mistakes as such has been able to take all the lesson learned the past years and really hone my investing strategy, philosophy, and approach and by doing so achieve the returns I wanted.

With great markets and partners I have, I now start to have a lot of opportunities in front of me and while I have also been able to secure financing partnerships with banks such as portfolio loans, lines of credits, etc, I am always open to different options. Recenty, several folks in my network and contacts of contacts have approach me unsolicited with the idea of being private lenders to me (for many of these folks while they have plenty of capital, I think this is a new structure for them and for me as well). I thinks this could be a win-win for me as I continue to scale my operations as I can provide folks good guaranteed returns (both against properties or personal assets) and I am very conservative and confortable with my ROI. So long story short :) i wanted to see if there were folks who have started to leverage private money that would be willing to provide me with thoughts on the best way to structure, what are some of the typical terms that make sense for them (e.g. interest rate ranges, amortization schedule preferences, frequency of payments, etc) and if someone had a standard or example of a private money agreement or contract that I could leverage and then potentially have one of my legal contacts tweak for me. Overall, any insights, templates / sample areements would be appreciated.

Cheers,

Eric 

[Account Closed]

@Eric Baum

The beauty of private money is that you have the ability to work with individuals/organizations to meet both your needs instead of corporations with a structured set of requirements.  That being said, there isn't a regular answer to your questions.  Realistically, it depends on a number of things.

1) Interest rates.  I have found that this is predominantly determined by your track record.  We've been in business for many years and have a long track record of success per house.  As such, we can be selective on the rate that we choose and only accept terms that help us reach our goals.  "Generally" you are looking somewhere in the 5-15%.

2)  Frequency of payments.  This depends on what your investor wants and what your cash flow allows for.  I have worked with investors who want a monthly check and those that want a biannual check.  I let the investor have the say in this case.

3) Amortization schedule.  This depends on a number of factors.  Is your investor financing flips or rentals?  Our flips do not have an amortization table associated with them.  At the sale of the project, the investor is entitled to all his or her money back - unless he/she chooses to reinvest.  As such, loan payments are interest only.  I am currently working out the terms to cash out a rental property I have.  This property would have an amortization schedule as the loan would not be paid off in under a year.  I'm working on terms of 5-7% amortized over 30 with a balloon payment in 5-7 years.  

4) Loan documents.  I typically use a simple promissory note.  You can get one from the legal documents websites and use your legal contacts to tweak it for you.

Remember that you are helping your investor, but they are also helping you. Terms that are amicable for all parties are easily negotiated when you aren't simply looking out for yourself, but also looking to make your investors money as well.