What if I decided to become a private lender vs being a partner?

[Ray A Delfi]

Here my idea, please share your take on this strategy and it may have been already be a thing, but I literally just thought of it at the dinner table and abruptly left the table to draw it out on my dry erase board.

Someone comes to me with deal and they need cash to finance it. It’s their first deal and may not be as knowledgeable and don’t have any cash to make an offer. I offer them 100% financing with the following terms:

- provide a detailed deal analysis

- Schedule for rehab (timeline for each phase, cost for each phase, list of contractors and repairs needed)

- Payments processed through an escrow agent to pay contractors that meet the said schedule

- Right to title with improvements if any one the terms are not met

- 10% points on the loan or 20% of profits for payment which ever is greater

Being that the project is 100% financed and they won’t have any “skin in the game” I don’t think it would be completely unreasonable to have right to title with such strict terms. Yes, it may be micromanaging but would act as a good teaching tool and low risk for someone that has cold feet and is scared to jump in. They would do all the heavy lifting and research on the front end we’re you would just do your due diligence and confirm the numbers and ensure they meet their milestones. I think it’s a win win as long as the deal makes sense and you have an exit strategy to be able to sell or continue to project and still make a profit.