If you are currently a private lender or have considered it, please weigh in.

[Rich Weese]

Here is a question that was posed to me by an old friend recently. He is attempting to do some joint venture or syndication type transactions. In our conversation, I mentioned to him that I am aware of private individuals that loan money to rehabbers, builders, and private lenders on bigger pockets. This thread is for those of you that find yourself in one of those particular categories or have considered it. I have been told that many are loaning in the 8 to 10% range with payments for interest being made at the conclusion of the loan. My question is the following.

If you found yourself in that position or if you have considered that type of loan ,how much more likely would it be for you to make a loan on the following terms or conditions instead.

10% annual interest on a one-year note.

Monthly payments of interest only.

A share of 5% of the profit with a minimum of $500,000 to a maximum pool of $1,000,000 so the 5% would be a minimum of $25,000 up to maximum of $50,000.

The imaginary transaction would be as follows:

Total purchase price is $1,200,000. Property will ALWAYS be free and clear except for lenders Note.

A 33% share is available for $400,000 and may be acquired in its entirety or a percentage at the minimum of $100,000 per share with 4 shares available .

The total return to the investor would be $40,000 in interest and $25,000 minimum in % of profit for a total 1 year minimum return of $65,000 for a 16% total return, and a possible return as high as 22%.

All other terms and conditions are equal on the 2 types of transactions: security, % of money developer has in deal, length of note etc.

On a scale of 1-10, how much likelier would you be to do this transaction?

Disclaimer!!!!! This is not an offering in any way and I'm not the principal. Thanks for your time. Rich

[Will Barnard]

Bill gacve some great answers and pointed out some concerns I would have as well. For instance, not allowing additional liens is impossible since mechanics liens can be common place and unpreventable by the lender.
Taking ownership positions opens you up to liability issues.

That stated, I really don't like the 10% rate plus the additional equity profits because they may not be there in the end and all you are left with is 10%. Taking on additional risk without a guaranteed better return does not sit well with me.

I may be more inclined to set the interest rate much higher, keeping in mind it must be done by a licensed mortgage broker to avoid the UT usury max of 10%.

Or, if I were to take an equity position, it would have to be structured with a new entity keeping any of my liability exposure within that entity that holds no other assets. I would want to have inside the structure a planned draw paid directly to the contractors and subs with lien releases from each as it went along, helping to prevent mechanics lien issues.

I also like the two structures that Bill laid out.