Promissory note for fixing Flip loan

[Jon Anderson]

A gentleman would like to borrow $20,000 and return $30000 on a short term, three month fix and flip. Does anybody have any templates for a promissory note for this type of transaction? I live in California.

[Kyle J.]

@Jon Anderson There’s not much detail provided here for us to go on, but I’ll offer you a few thoughts. For my comments below, I’m assuming the “gentleman” in this scenario is the proposed borrower and you are the potential lender. 

First for foremost, you’ll need more than just a promissory note. If that’s all you have, it’d be an unsecured loan. And that’s not a very safe way to loan out your hard-earned money. You can read more about the forms you should be using (and some other good tips about how to do private money loans) in this thread:

https://www.biggerpockets.com/forums/49/topics/413352-private-lender---forms-required

Secondly, since you’re in California and this “gentleman” only wants to borrow $20k, I’m going to assume that - given our high housing prices - this would not be a first position loan, even if it were secured. That being the case, you should understand the risks of loaning in second position. Granted a second position loan is better than an unsecured loan, but it’s still inferior to a first position loan. Point is, you just need to know what it is you’re getting into and the risks associated with the type of loan you’re doing.

Lastly, at face value, this sounds like an illegal/usurious loan based on the stated return (unless you’re going through a licensed broker which I’m assuming you’re not because then you wouldn’t be asking us for a promissory note). It doesn’t even matter if the borrower offers or is willing to pay those high of returns, ALL the risk is on the lender if it goes bad. So be careful. 

I realize none of this is probably what you were hoping to hear, but I’m trying to keep you out of trouble and/or from losing your money. 

Without more info it’s hard to give specific advice, so just read the thread I linked to above, and pay specific attention to the response in that thread from Jeff as he gives great advice.

Best of luck to you.