Private Money Lender Setup Options

[Rae Hoffman]

Hey, y'all - I'm wondering if anyone could give me an idea of what the options are when it comes to private money lenders. I have a few people who are willing to become PMLs. My questions surround the setup surrounding all of this.

*Note - I am in Texas if that matters.

From what I've been able to gather with talking to other investors, several I know have their's set up to run it as no points, 12% annualized interest, paid at closing. Some say 10%. Anyone know the average?

Some questions I'd love some advice or opinions on -

1. I've seen some advise you'll get more lenders interested if you offer a minimum three months on their return (houses in our price range move fast here). Thoughts?

2. The lenders would be in for a minimum of 100K a piece, but where we would be flipping, that's only two-thirds of a house before repairs. Most of the setups I'm seeing put the lender in 1st position on the note to secure the investment - considering our flips would almost always take two lenders if we're working with folks loaning the 100K minimum - how does that work? I assume two people can't be in the first position on the loan.

3. Let's say a house with two private lenders (or a fund) loses money on the deal - how does that work concerning how people are paid back when more than one lender are involved?

4. I've seen mentions of a private lending fund here on the forums. How do private lending funds work typically?

5. What if you end up getting 500K in a lending fund but only end up using 200K of it in a given month for whatever reason?

5. Let's say a house with a lending fund loses money on the deal - how does that work concerning how people are paid back who have money in the fund?

Make no mistake; a lawyer would be setting all of this up for us - before we took a single dime - but I'd like to know more about the best way to get this all setup and how it all works before hitting one up. 

We'll be doing about a house a month under our own funds, but obviously, we'd love to do more.

We were a little surprised that when we made a very minor mention, we'd soon be looking for lenders with 100K minimum to invest that we were hit up by two people fairly quickly. And we've yet to actively look for them - so I need to get this figured out, and soon.

Thanks for any advice, tips or information about pitfalls to watch out for!