Hey BP community, I have a situation that I am looking for a solution to or advice on. I live in Philadelphia, PA and have a relationship with an acquaintance whom is willing to fund investment property deals whether they be long term buy and hold, flips or buy, renovate, refinance and holds. He is a going to be a silent investor/funder and though I am a contractor, this will be my first property acquisition. Here is the complications that I am struggling with.
I have found a few properties that need very little work done to them before they can be rented and they are in working class neighborhoods so the price is very affordable. This puts both of us as very little risk. These properties are being sold As-Is so they need to be paid for with cash, which the funder is fine with. The problem is that I was interested in setting up an LLC, for which there would be a bank account. He would deposit the necessary funds. The LLC would purchase the property and the LLC would pay him back under a mortgage. This way he has to do very little except cut the check, sign the paperwork for the mortgage (issued from him to the LLC) and cash a check once a month. The complication is that, if I understand my research correctly, in Pennsylvania, according to the 2008 "Mortgage Licensing Act", no individual is allowed to issue mortgages unless they are licensed as a mortgage originator. I do know that some hard money lenders provide long term lending, i.e. mortgages in PA so I assume that they are licensed to provide mortgages.
I have considered the following solution, but found complications. The funder could purchase the house then sell it to the LLC or myself on land contract. I assume that the land contract would be structured very similarly to a mortgage (duration, interest, payment structure, P&I, etc), but is legal because he is then selling me the property over time rather than his money over time, which is what a mortgage is. The complication here is that now he has to be willing to go through all of the hassle of being the purchaser of a property and he has to hold the title to the property until it is paid off or refinanced. This situation is further compounded by the fact that there are a few properties which are similar to this scenario which I would also like to us him to fund.
If anyone is familiar with PA lending laws or has any advice on a creative situation that is legal, straightforward, keeps both parties protected and requires the least amount of effort to the funder, I would be very grateful.
Thanks!
Patrick O'Neill
