Hard Money/Second Lein position

[Jake Lenderman]

I have done a couple of flips, but I have a question.  My parents want to invest, but how does it work if I do a hard money lender for the purchase and use their money for the rehab?  Their concern is they have no collateral if things go south.  I tried to do some research on what recourse they would have, but came up blank.  And just because its family, its still business and the rehab will run about 100K, so it is not a small amount of cash. =)

Thanks for your time.

Jake

[Jake Lenderman]

@Jeff S., Thanks for the information.

Some history, we did a flip last year with them, they provided the financing and I did the rest, we split that 50/50 and it worked out great on the business side. We had a profit of 72K. Family side there was some strain =)  I want to be the sole decision maker on this next one, which is why I didn't really want to partner with them.

My original thought was to pay them 10% interest on the amount borrowed plus 15% of the total profits, so it would give them equity interest in the property but that gives them no collateral still.  Second position seems like a bad idea since the hard money lender has all the power.

We do understand the risks, they want to invest and we all want to be profitable. We are family, but it is still a business and they should make sure that they have some sort of protection of their money.  I will find a lending attorney and figure out my options.

Thanks again for your information

Jake