So I have a private lender now what?

Question

I was recently taken back at thanksgiving when 2 family members approached me about my RE Investments.
Them- "so did you buy that other property?"
 me- "yep." 
Them- " well, you know, if you're ever looking for investors we have some money to invest"
 
When in the past the conversation went like this. 
Them "you know if you ever need help with money(get in a jam) you can always call me and your aunt."
 
As you can see the difference in tone.

Now to the scenario/question: 
 I was thinking, for the properties that I want to hold I would agree on an interest rate and maturity of loan with these members.

To do this would you have them do a mortgage 1st position (actually file) if I buy something out right. Or just have a notarized contract and make payments?

or if i find a seller finance deal and my PM funds are used for a down payment.Do I give them the 2nd position mor. or just have a notarized agreement between us?

For the flips I would ideally rather pay them an interest rate. However, 50/50 would be more civil since it's family members and I would have no skin in the game just my knowledge and minimal labor.

What have you all done in the past? Sorry for the ignorance but I've only done conventional borrowing and didn't think anyone would approach me/I would need PM til at least my 5th rental.

Mickey Harrison · Answer

Thanks for the response

Jeff Rabinowitz · Answer

I've found that the best way to learn what an investor wants is to ask them.  Do they want to be a deal partner, an equity partner, assuming a higher risk for a potentially higher reward or would they prefer a stated interest rate?  How long are they comfortable lending their money, what return would they like, do they want monthly payments or would they prefer a balloon at the end?  Once you learn what they want structure a fair deal and protect them with a recorded first mortgage.  If they will be in the deal for an extended period make sure you buy them a lender's title policy.  Name them as additional insureds on the liability policy.  Communicate with them frequently.  Oh and when your deal is successful give them a little bit more than they asked for.  The best way to fund your next deal is to keep your current lender happy.

Steve L. · Answer

Whatever they will agree too you can do.

The standard scenario is typically they get a first trust deed (mortgage) on the property.  You can document notarized and recoded at the county.

I would discuss specifics and see what interests them and how much $$ they have.