Questions on using private money for transactional funding

[Kurt G.]

We are pretty much committed to flipping properties one at a time for now, but I am interested in upping my marketing game and wholesaling as we go.  The more I read, the more I am leaning toward double closings, however I lack the funds when a large rehab is underway - like now...  I have a number of friends/family/coworkers offering to invest in our business, so I am leaning strongly toward using their money for transactional funding which does not appear to be very common.  A couple of questions I have are:

1. I see that typical rates are 1 - 2 points.  What would be appropriate to offer friends and family, and how is the deal structured?
2. What would a contract with the PML look like?
3. What are the logistics of transferring funds, especially if they are coming from a family member from a distance?
4. Are there any legal and/or tax considerations we would need to know about?  I am in Kentucky, but could be working with private lenders in Kentucky, Wisconsin or Florida.

Thanks so much!

[Brian Jordan]

I use transaction funding on 99% of my wholesale deals. You'll want to find a title company willing to do same day closing or next day closings so that your lender has their funds returned either the same day or no longer than 48hrs. I pay $500/transaction under $100k and 1% at $100k and over. However, I'm doing 4-6 transactions per month so it's worth it. As far as paperwork goes, a simply promissory note should do the trick, especially with friends and family. Now, as far as the logistics, they'll wire their funds to the title company. They'll receive their funds back from the title company as a wire with their fee included. If you really want to be cautious, only have them wire their funds after the title company has confirmed that your buyer/investor has signed and their funds have been received. You'll have absolutely zero risk that you'll get stuck with the property. This will all depend on your title company performing same day closings though. Let me know if you need some clarification and I'll help out the best I can.