Private Lending Partner - Examples

[Anthony Vargas]

Hello Bigger Pockets -- 

While there's been some setbacks during 2020, I am finally aiming to acquire my first property in 2021. I've seen lots of discussion about private lending partners, but I was hoping to receive some examples of arrangements investors have made with their private money partner. To be clear, I don't mean hard money lenders. 

This will be valuable for me in structuring my own arrangement with Minneapolis-based private money. Thanks in advance!

[Jeff S.]

You seem to be confusing terms, @Anthony Vargas. While lenders have an interest in your success, they share no equity in your property are not your partners. Similarly, be careful trying to define a difference between a private and a hard money lender since legally they’re exactly the same, subject to the same laws and protections, and should require the same paperwork.

While you grandmother might give you more favorable terms than a local hard money lender, with whom you might only have a fleeting relationship, both should require a note, mortgage or deed of trust, 1003, personal guarantee, hazard and lender's title insurance, disclosures, etc., etc., etc. The protections and associated documentation are the same for each and should come from a competent attorney with private loan experience.

I know no one wants to think about it, but grandma might have to sell her loan to you at some point or even foreclose. She needs to understand what she’s getting into and needs the same protections as any other lender.

Any lender will expect to receive interest, points, and fees, as appropriate, and as legal. These are generally defined in advance and predictable. Unless this is a shared appreciation mortgage of some sort, lenders are not your partner and do not share in any profit or loss from your operations. This is one difference between a debt and an equity investor.