how do you protect a private lender?

[Mason V.]

I am trying to think of ways to creatively finance a rental property with three tenets. One of the tenets is a doctor’s office while the other two are residential. One of the things I have considered is acquiring a private loan through another investor. The property costs $250,000 and they would thus give me $50,000 for the 20% down. I am thinking the terms of the loan would be 10-15% to be paid out over 5-10 yeas depending on what we agree too. According to the seller the property has a gross income of $18,000 and a net of $7,000. Supposedly. I have not looked at the financials yet. Right now I am just focusing on brainstorming the financing at this time.

In ideal conditions I think this could work. Life is not ideal though and I would like to know how the other investor would be compensated. To my understand the mortgage gets paid first. So if anything goes bad the bank will either get their funds back through insurance or get the property.

However, what happens to the other investor if the building is foreclosed or there is not enough insurance money for them as well? Is there a way to ensure they don’t receive a total loss or would they just have to accept they wasted $50,000? Obviously that’s part of investing, but I would like the reduce the risk for them sense their loss would result in me getting a bad reputation.