How to Structure Private Loan for Down Payment & Reserves?

[Eric Roth]

Hi All,

I'm considering the opportunity to lend private money to a small group of investors I know who are buying rental properties, doing slight renovations, and leasing them out. The business plan seems solid and I trust the investor group. They approached me asking if I'd want to lend them money so they can pay a down payment and show some cash in the bank for reserves in order to obtain a conventional mortgage on their next deal. My question is, what are my options to structure the loan with some decent security since I won't be able to have a first lien (or probably any lien) on the property they are buying.

I've heard of taking a lien on their primary residence, but if they already have a mortgage on their house, is that even possible? Would the mortgage lender allow it?

I could take a personal guarantee from each member of the group, but I'm not sure what that's worth since I believe most of their assets are in their investments (hence the need for private debt), which are probably in an LLC. Maybe a guarantee from the LLC as well?

I'd welcome any thoughts or advice on how to make my position in this deal secure. Curious how you all would approach it.

Thanks in advance.

Eric

[Justin Kane]

@Kenneth Garrett agreed, if they wont let you JV then make sure you have equity interest, do not invest in REITS or non recourse note deals