Promissory Notes for Private Lenders

[Karla Kahmeyer]

Hello KC BP community

I'm exploring using a private lender for financing, and have a couple of process questions. 

1- Do you typically set your notes so that there are no pre-payment penalties? 

2 - If its a 12 month note, and you are able to refinance at 8 months to pay off the note, how do you handle the amount of interest that you are paying them (ie.. are you prorating it for the 8 months, or do you go ahead and pay them the full interest for the 12 months)?

3 - Does anyone have a recommendation for an attorney they use to write up the promissory notes?

Thanks everyone!

Karla

[Tom Shallcross]

Hello @Karla Kahmeyer - I'm not an attorney, but I had my attorney write up my promissory notes.  Shoot me a DM if you want to connect further. 

To answer your other questions directly:

#1 - Yes I set mine with no pre-payment penalty.  It's more so the the lender knows the longest his/her money will be out is 12 months and you have to pay the note off by then.  Just set realistic expectations and stay in constant communications to minimize surprises.

#2 - I pay monthly interest-only payments and then the principal after I refinance/sell.  If you weren't paying interest only, then yes you in your example you would pay the 8 months of interest (and you would also figure out the daily per diem so you can be 100% accurate with the payoff).