Hard money loan to an old friend. Never done this. Help!

[Richard Miller]

So friend for 20 years has flipped a couple homes recently and knows I'm interested in the same calls me up. Wants to know if I would be interested in being his hard money lender for about 100k for his 3rd project. I don't know where to start, are attorneys needed? Sounds expensive for a 2 month loan. Or is there a web page that would takes care of all that for you? Obviously would like to do it but want to be protected at the same time for the least amount of profit loss. Fire away and give me guidance BP'rs.

[Andrew Michael]

This would be a private money loan.  You are acting as the "bank".  If he is a good friend I would get in touch with an attorney and make sure the proper paper work is drafted.  If he is a really really good friend I would not do the deal :)  You need to both be on the same page when it comes to terms, structure, scope of work, timelines, responsibilities, etc.  

Are you doing this as a favor or a business venture?  

Generally private money is going to be lower points (if any) and lower interest rates then hard money.  The people that I know giving or receiving private money are anywhere from 4-8% right now.  

Another option would be to lend the money for free but then take an equity position in the property.  Perhaps a little of both?  It really all depends on why you are doing this and what each party expects of each other.