Specialist · USA · Member since 2016 · 45 posts · 17 votes
Hello everyone,
I am grateful to have stumbled upon the situation I am currently in but I certainly need some guidance. A few family friends want to do deals with me by giving me money, so private financing.
Those of you who have taken on outside money to purchase properties, how was your "entity" structured to protect yourself and your investors?
Do you have those investors put a lien on the property?
Do you have them lend directly to the legal entity?
How do you keep a paper trail of the money lent? If I get a commitment from one family member for $1 million and end up using $400,000 is there a logical way to keep track of that beyond contracts lawyers draw up for us?
Maybe I'm missing something but I do not know the answer so any help is greatly appreciated.
I just want to have a legal and concrete structure built for anyone that wants to give me their hard earned money that protects everyone and gives us the biggest tax benefit.
Ours was a loan to us in our name. Several times over. Lender gets first position lien. Note was written by a lawyer. We just send the checks to them and write a receipt. I’m sure we’re missing something but they keep coming back to lend us money so we must be doing something right. In the end, a couple of lenders can be enough to fund all the deals I intend to do. Give them something of value and they’ll likely keep coming back as you help each other out.
Good luck,
Will
Ours was a loan to us in our name. Several times over. Lender gets first position lien. Note was written by a lawyer. We just send the checks to them and write a receipt. I’m sure we’re missing something but they keep coming back to lend us money so we must be doing something right. In the end, a couple of lenders can be enough to fund all the deals I intend to do. Give them something of value and they’ll likely keep coming back as you help each other out.
Good luck,
Will
Once you have the note stating the amount those individuals are owed how does that note get places in first lien position? It seems obvious that it is first position but what legalities must be satisfied in order or the lien to be on the house and not just a personal loan? Is it simply that the note documents state that the loan is secured by the subject property?
Do you have a preferred rate of return you give to your investors?
What kind of deals are you funding with their money?
If you have multiple investors in on one deal how do you choose who gets the first, second, third etc. lien position?
Do you have any recommendations for material I can read up on to get more info?
@Paul Wakim the title company records the lien with the county courthouse (I believe this is correct) and that secured first position. I don’t physically go to the courthouse and so far no snags. I’ve never used multiple lenders on one deal. I personally wouldn’t want to lend in second position ever so I don’t ask lenders for it. Although the risk and potential return would be greater, hypothetically.
Rate is negotiable between you two. I borrow about 75 percent of the arv and always put money in the deal (skin in the game). My lender always has collateral worth more than they loaned so it’s a good deal for them should I be a deadbeat. After a couple good deals, you’ll see that they are anxious to loan on another deal. It really can be a win/win arrangement.
I use the money on BRRRR type projects and keep funds about six months on average. Hope this helps. PM me if you have any more questions. Best of luck.
I have done this two ways. The first was where my partner was essentially a note investor similar to how @Will Pritchett described above. I would highly recommend this method if you have a partner that wants to be as passive as possible.
I also have a partnership with 2 more active partners. We created a general partnership agreement with the help of a lawyer and divided responsibilities between us. Its an equal capital and equal work share partnership. This property is with a management company so that saves us the trouble of one partner doing most of the day to day work.