Private Lending Structure Question

[David O.]

I have a question regarding how Private Lending is typically structured. I will give you this scenario. 

I have a SFR home that I will purchase for $65,000 and rehab for 25,000 the ARV will be 100k. I would like to borrow 100% from my friend "Bill". Bill has a self directed IRA that he would like to loan me the money from.

1.Is there a typical "best practice" structure for this loan? I.E. do I give bill a first position on the property or just sign a promissory note? 

2. Anyone experienced on how Bill would access those funds from his self directed IRA. Does he contact the custodian and with what documentation?

3. Any tips on preparing the appropriate documents. I imagine having an attorney do it properly makes sense but any tips surrounding this? 

Thanks so much. 

[Rick Bradd]

If I were Bill i would insist on a promissory note AND a first position trust deed, the promissory note and deed need to be in the name of Bills SDIRA custodian for benefit of Bill's IRA and the note needs to spell out the terms, rate and period.

Bill's custodian will have a direction of investment form, he can call the custodian directly and ask what they will need and the EXACT name and address their underwriter is going to demand, for instance EAGLE TRUST LC FBO BILL'S IRA, I had one kicked back because it was addressed to EAGLE TRUST LLC FBO BILLS IRA. they will also tell Bill what they want as far as the Note and deed, make sure it gets recorded too. You will also need to give Bill your wiring instructions for your bank and work out any draw schedule.

No offense, but this is not a good investment for Bill, the LTV is way to high and you have no skin in the game, i would not do this loan, but maybe Bill is more trusting, good luck.

Rick