Fair Market Terms for Private Financing from Friends/Family

[Lori Lusk]

Hello BP!

My husband and I are working on preparing a promissory note form so that we can offer the opportunity for our friends and family to invest in our real estate business. I would love some examples of fair market terms and how people structure repayment of the principal. 

Currently, we are planning to offer a fixed interest rate, paid monthly, with a pay off date being in X years. What interest rate and term are most people offering? And how do you go about paying off the principal? For example, if we offer an 8% interest rate, with a 10 year term, would you amortize that loan like you would a mortgage, or is it more typical to have an interest only payment until the payoff date, at which time you would pay off the lump sum principal amount? Any other ideas of structuring a note? Just FYI... we will be accompanying the note with a deed of trust.

I'm excited to hear what structures everyone uses. Thanks for your time in reading this!

-Lori 

[Charlie Fitzgerald]

Please seek the advice and counsel of a local RE Attorney to help you do this right.  Terms are all negotiable between the parties.  Paperwork and structure of the terms needs to comply with State laws..even for private money from friends and family.  It's better to be safe than sorry.  Its always wise to have an Attorney to guide you in the beginning...just my $0.02 worth.