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