Hi BP!
I am trying to get my first few deals off the ground and am working with little funds of my own. To mitigate this issue I've attracted some modest family/friend money into a fund that will act as seed money for down payments, partial rehab costs, holding costs, etc. Where the rest of the money will likely come from traditional mortgages or even more likely, Hard-Money lenders. I plan on doing a mix of flips and buy & hold / BRRRs, and am setting up my systems to allow me to do multiple projects at once.
I have set up an LLC in the state of Illinois (plan on doing business in Chicago mostly) and am drafting up a fairly comprehensive Lender's Agreement to hopefully put nearly any possible scenario in writing with specified response action, to avoid any issues with friends/family down the line. I am currently drafting my "Risk" section of the Agreement and don't want to write anything that is untrue, or give a false sense of security when it comes to overall risk of loss beyond potential of partial/full investment loss on a specific project. While I understand this forum should not replace the review of my Lender's Agreement by a professional accountant and lawyer I wanted to get a gut check from you guys first...
It's likely there will be times I'll have more than one project going on at a time under the same LLC, probably all of which will have some amount of money invested from the family/friend fund, and at least one of the projects going on at given time will require Hard-Money. That said, if I partially default on one Hard-Money loan for "Project A" will the Hard-Money lender have the right to put a lien on another property the LLC owns, say a buy & hold property named "Project B", including going after money invested in them from the family/friend fund, or how contained will the lender's losses be to "Project A"? If it can carry over to other projects, how long does this debt typically stay in effect (i.e. if I start "Project C" a month after I go into Hard-Money lender default on "Project A" will the Hard-Money lender have the right to go after funds/property associated with "Project C"? If so, how long is this carry-over debt typically in effect? I understand there is no black and white answer without applying the specific terms of a particular Hard-Money lender agreement, but general rules / feedback would be appreciated.
I'm sure the clear answer here is to set up a new LLC for every project but given how fast you have to move on certain properties or other constraints (largely the cost of setting one up each time) that may not be possible and I'd like to know my own, and my family/friend fund's liability if a Hard-Money loan were to go south.
Thanks for reading through my lengthy post and appreciate your time and all your responses!!!
