Private Investor

[Tony Castronovo]

I have a possible investor who may be willing to fund my deals.  He would be strictly a passive financial investor.  We can work out the terms that benefit us both.  But how does he manage his risk?  In other words, would we write an agreement listing the property as collateral?  Would he then have a first lien on the property?  I am a bit naïve to this process and looking for a little guidance.

[Ashley Pimsner]

@Tony Castronovo generally a private investor gets 1st lien on property (mortgage deed or deed of trust) a promissory note signed by borrower in which private investor states terms such as rate, term length ex. 12 mths possibly with option to renew, prepay or no prepay, points. and add private investor to insurance policy listed as "loss payee", along with a personal guarantee from borrower and have all docs recorded.

Funds from private lender go into escrow at title company or placed with an attorney, closing docs with mortgage deed or deed of trust and promissory filed at courthouse signed and notarized.

Private investor gets original promissory note and copy of mortgage deed or deed of trust and you get a lien for purchase price and rehab.

Sell or refi after project complete, pay back private lender and keep what's left.

Let me add there is no right or wrong way to do this as I have heard of many different arrangements but hopefully this gives you a general overview of the process.

All the best!