Developer · Aguada, PR · Member since 2014 · 928 posts · 279 votes
I have networked with several people who are interested and willing to loan private funds. I will be meeting with them this week, to go over what it is we are doing with the capital and details of mutual goals and interests.
now that I am at this point. I need advice on how others close the deal.
1. how or where are the funds held (escrow, LLC, trust)? how are they transferred?
2. once we have a potential property lined up, should the funding be in place already, or have funds transferred after deal is found?
3. how are you securing their capital? are you putting their name on deed?
4. I assume the lawyer and contracts will have to be drawn up for all this to happen.
5. how do you usually pay out interest and/or principle (monthly, quarterly, annual)?
I would like to get all this info before sitting down with them, so they are more comfortable with the process. We plan to group a few individuals together to fund a few flips or new construction.
1. Talk to a an attorney who does real estate law. It will cost a lot more to have an attorney set up an LLC for you as opposed to doing it yourself, but I think it is well worth the money in case anything goes south.
2. Funds are held in a business checking account owned by the LLC. I am the only one managing the account and am the only who has access to it as well.
3. You'll want your funds in place ahead of time. This whole process takes a while to set up. Once funds are in place then you can get a per-approval letter from the bank to say that the LLC has been pre-approved for a loan. Since you won't have any business credit, the bank will look at your credit and you will have personally guarantee the loan.
4. Title will be taken in the name of the LLC, to which everyone is a member of, and I am the only acting manager which means that only I need to be present to sign documents. All contracts will be taken as the name of the LLC as well but you'll still be the signor.
5. If the LLC makes certain net profit off a flip, then I get a cut of the profit off the top. The remaining profits will be divided based on the percentage each investor has into the pooled funds.
This is just how we set it up. By no means am I an attorney and I would highly recommend you consulting one to set up this type of joint venture.