Logistics for first private money deal

[Ashley Russell]

We are doing our first private money deal so we can pay cash for a property up front, renovate and then apply for a conventional mortgage in our names and pay our investors back. The investors are family. How should we structure the repayment? What is the going interest rate for private money these days? If they are loaning us 200k for example and we agree on 6% interest for a 12 year loan, how do we amortise or do we pay all at the end? Do they simply wire the cash to us and we purchase the property in our names? Having only done mortgages before, I know we always have to show where we get funds from but for a cash deal there are no such rules correct? Should we do some kind of contract or legal doc since it’s family?

[Shiloh Lundahl]

Yes. You would absolutely create legal docs that outline the expectations of the loan and the repayment. The reason is if you want them to take you seriously then you need to do it the same way you would do it if they weren’t family. This can help you get ready to work with other private money lenders in the future if you have already used private money lenders correctly in the past. 

When you said 12 year loan did you mean to say 12 month loan? Because if it is a year long loan then you could structure it to where all the interest is paid to the private money lender once the property is refinanced within the 12 months. If you meant to say 12 year loan with a balloon at the end, then you will most likely make monthly mortgage payments along the way which would include interest and principle pay down.

You can have the private money lender wire the money directly to the title company and you can sign the promissory note that is created for the loan at the title company along with the closing docs. You wouldn’t need it to be seasoned in your account. I believe that is a bank requirement for some banks to make sure you aren’t using more debt for the down payment that may put you over the dti ratio that they used to qualify you for the loan.