Risk of 2nd lien position

[Andrew Flora]

I have a private investor(family friend of mine) interested in helping me fund a large acquisition. His main concern is that he will be in a 2nd lien position and he is afraid of what could happen to his investment if the deal goes bad. Obviously I'm showing him numbers and explaining my system and my past success and he feels safe with me, but he has never invested in residential real estate. How do I convince him his money is safe in a 2nd lien position?

[Andrew Postell]

@Andrew Flora I feel that your private investor has an adequate concern.  2nd lien position is more risky than a 1st lien position.  You know what's less risky....not investing.  Keeping that money in that bank account that pays .01%.  That has hardly any risk to it.  I feel when negotiating it's not the right move to convince the other person that they are wrong or that their concerns aren't valid...but rather agree with their concern and listen to them.  There's a reason why you are paying them a higher interest rate than what they can receive at their bank or for CD's or numerous other products.  At least, I hope you are paying them a higher rate than what they can receive!   But it's more risky, but it's not like penny stocks or anything.  This is real work that we do.  Check in again with your investor and see how they are feeling and try to see it from their view.  No need to offer an alternate view.  Just let them know you would love to partner with them if they would like to invest.  I hope this helps in some way.  Thanks!