Private Money Mechanics

[Matt Burgess]

Hi everyone,

My partner and I are looking to start using private money as a financing option for the BRRRR strategy.

We understand the high level concept (how we pay them back, benefits to them, benefits to us, etc), but there are some minor details that we would like to understand better before asking someone to invest with us. 

1. Should we get a proof of funds that we can use when submitting offers? I believe it is common practice to submit a proof of funds when submitting a cash offer. How do we get that from a private money lender?

2. How does the money actually change hands? For example, do they write us a check when its time to close? Do we need to have the money in our account prior to closing? Do we write them a check after the refinance or are they paid by the title company?

I would love to hear how you all are currently using private money, specifically around the questions above. Thanks in advance!

[Andrew Postell]

@Matt Burgess thanks for posting.  Was there a specific reason you needed private money for a transaction?  

To me, private money comes from a specific, private person - like a family member for example.  And usually that type of a lender leans on us to tell them what to do.  They are normally not versed enough to understand title, note language, filing rules, etc.  So we have to direct them.  A private person chooses to lend with us because their own money is not providing them with good enough returns so we "sell" them on the idea of getting better returns with us rather than their 401k or something like that.

All of the private people I use for financing I still draft a note for them and instruct the title company how to document it on the deed.  I do have them transfer money directly to the title company unless they feel more comfortable sending it to me.  I purchase off market properties....so I don't have to provide a "proof of funds" letter too many times but I have provided it with my own bank statements or received a prequalification letter from a hard money lender.
  

Now, if by "private money" you meant something different please let us know and we can help in a different way.