Structuring an LLC with private money lender

[Nick Marshall]

Hi everyone,

We are working on our first deal and after sitting on the sidelines for a while and reading all thing BP, we are very excited to have our first offer accepted!  

We are looking for advice on how to structure the new LLC we are forming with our private lender. The private lender is providing the cash needed for the down payment and we are putting in the sweat equity. Do you suggest making the lender an owner in the LLC's Operating Agreement or do you suggest treating the lender as a bank and asking for the money up front so the cash sits in the hands of the LLC and the lender is treated as a bank? We attempted the first scenario but we have run into many issues where the lender has had to have his credit checked many times and is constantly being bothered by the bank since he is the source of the money. This has not left the lender too happy with the deal so far so we are looking for other options.

Thanks for any help you can provide!

[Antoine Martel]

Nick.

Treat the lender as a bank and ask for the money up front so the cash sits in the hands of the LLC and the lender is treated as a bank. Then put the lender in 1st position on the property as a lien holder.

That will protect their funds and give you full control over their cash to invest it wisely. Do not make them a member of your LLC, that creates more paperwork.