Newbie with a private loan question

[Kyle Dutson]

I was just curious if anyone could clarify something for me. Hypothetical, say I want to buy an income property but have no to little money.  I have searched out another investor to help me but this investor wants to do a debt investment and not an equity partnership. I come up with enough money for the down payment on the property via the private loan. How do I secure this loan for this investor? The mortgage lender (bank, or seller) would hold the 1st deed of trust if I am not mistaken. What form of security would the private lender have? A second deed? Excuse my ignorance

[Jason D. Lewis]

It is my experience in dealing with private lending and lending privately myself, that an investor would only lend if they were a charge on the mortgage.  I would not advise a client to accept a deal otherwise, as there would be limited security.

Seeing as you need these funds up front to act as a DP for the bank, it wouldn't be  very appealing deal to the hard money lender.  I suspect that they would be advised to avoid it.  most private lenders look to secure deals where they hold the first charge, or there is significant equity in the property.  They want to ensure you have serious skin in the game, which will help them sleep comfortably, knowing you most likely wont walk away.

Maybe to get started, you might consider becoming a wholesaler.   This will expose you to the different markets, expand your network and help you save for a dp.

The other option (which I suggest, or worked for me when I started out) is to secure a property that will cash flow, complete your due deligence, complete a thorough analysis and then present it to a partner (friend or family) who will put down the cash, while you act as the industry professional with all the knowledge.   if your numbers work, there is often enough meat to feed two lions.