How to get the Private Money thing going. (Investor Packet?)

Question

I am at the point where i am ready to start asking people for private money and use the BRRR method of building a successful real estate portfolio. I've worked as a bartender for the past 6 years at a high end restaurant in Dallas. This has given me the opportunity to meet wealthy individuals who are willing me to help me reach my goals. Im overcoming the fear of asking but would like to have my ducks in a row before I sit these strong private money leads down.

Specifically, what kind of "loan paperwork" will i need for this type (BRRR) deal.

Where will the money be held while i find the next deal? or am i just getting commitments from them?

Will they give me money personally, then i buy the property or will they purchase the property and it just be put under my name

Will the property be owned by them over the first year then i acquire ownership after i refinance after that first year?

Ive watch the webenar and understand most of the process except this final closing of the deal with your private money lenders.

Arthur Lyons · Answer

I use 2 maybe 3 pieces of paper. #1. a promissory note: This would be used if the money you are receiving is being set up as a loan. It states the terms of the agreement. loan amount, points if any, Interest rate. I typically shoot for 1 point and 8% interest paid over the course of 6 months to a year. #2 a Profit split agreement. Because I pay 8% and sometimes 6% I will offer a profit split on top of the interest IF the investor is putting up most of the money. If they are giving me 100% of the money needed for the deal I sweeten the pot with a share of the profits. *Sometimes I only use form number 1 or number 2 but not both.  3. To give them a sense of security you can also make them a lien holder on the house you are purchasing so they know their investment is backed by real estate.  LASTLY BONUS ADVICE: Add them to your life insurance policy for the life of the project for the dollar amount that they have invested. IF anything happens to you they will be covered and your family doesn't have to worry about messy paperwork.   In the words of Lavar Burton from reading rainbow "but you don't have to take my word for it"  consult a lawyer.

Jeffery Waicak · Answer

It's private money,  i think you can set it up however you both agree.

It would probably be best to just have commitment, if you are holding the money, usually there is interest accruing.  It's still private money so it's whatever you agree on, but that's typical.

I think the property should be in your name, otherwise it won't be a refi, but a purchase.

You would probably sign a promissory note and or a mortgage to the investor. I'm in ohio, we may have different laws, I'm also not a lawyer.

I think its great you're prepping first. If you have a friend who can help, do some role playing.  Good luck!

Levi T. · Answer

That's a lot of questions... I'll skip over most as it's redundant. Private money is like asking your mom or friend for money. You want to start a business, and you need some money to make that happen. Through the process of talking to people you have known for a while, you will find someone and you will both come to an agreement on how much money they will invest, who get's what percentages, and when will the money be given.Generally speaking, partners and or limited partners, will just want to invest into your business and let you run the operation (managing member). This means your the one buying the property, setting up the business entity, opening the bank accounts, getting the loans, doing it all, running the business. They just invest the capital you both agreed on and have no further risk in the business, thus why they are "limited" partners, and not just "partners" who helps run the day-to-day operation.

Whatever you all agree on; if that is they just give you a verbal commitment to fund a deal, or they deposit the funds into your newly minted business account, you will both want to draw up a business agreement before money exchanges hands.Now there is a lot of legal stuff from the SEC concerning private money, and I wont be getting into it as it's way to deep for this one thread, but what I do is keep a list of people who have expressed interest in investing in properties with me. I've known them personally for a while (that's a legal requirement from the SEC), then when I get a deal under contract, I call them up and tell them what I have. If they are interested they invest, if not, I move onto the next person. If it don't work out, well then I did not get the funding and the deal would be void per the term of the contract I have with the person who is selling their real estate to me.There are a lot of layers in all this, from finding properties, writing a correct contract, having a rolodex of people to call, setting up the LLC, bank accounts, getting the funding, closing, and finally running the business.

**Not legal advice, entertainment only**