All Forum Posts by: Phil Petite

Hey Phil! Do you still have the video I shared with you months ago on how to set up an LLC in Tennessee? Check our chat messages, should still be there. I wouldn't recommend setting up an LLC out of state if you are buying in Tennessee unless your tax advisor is looking to help you on strategy.. but from a numbers standpoint, it really doesn't make sense when you start adding up on all of the annual LLC reporting fees from different states and then it starts cutting into your cashflow. Hope that helps!

Hey Phil,

I live here in Memphis and can say from experience that Tennessee makes it easy to setup an Llc.  Doesn't mean its a necessity to have it formed here but it is a fairly straight-forward process.  If you have any specific questions I'd be happy to connect with my attorney for advice.  All the best and let me know if I can help in anyway.

@Phil Petite, to echo Mitch's comments a bit, you are not taking on investors, you are taking on private lenders.  

So, while at the end of the day, you can do anything you want that your investors/lenders agree too, but it very much against the grain for you to both borrow money from them, keep all the upside, charge a fee to your lenders.  Of course you are going to "keep the cashflow" after paying the interest, because your "investors" don't own the property, in this structure.  They own a note secured by the property.

I think you are convoluting equity investors and the typical terms and structures provided to equity investors and private lenders.

Think of your "investors" as the bank.  Do you charge the bank a fee for bringing them a deal to lend on?  

As for BRRRRing, there are definitely people that use private money lenders as credit lines on deals.  You use their money to buy deal one, you renovate, rent, and refi with bank debt, to pay off their loan, but the agreement is they keep that loan available to you until you find the next deal.  

Again, almost anything is possible if you and your investors agree to what is happening.  But like Mitch said, it sounds like you have had 4 winning deals and no losers.  No one that has been at real estate for more than a couple years has had no losers, and when you lose your family's money, well sometimes those close knit families aren't nearly as close knit and you start getting people playing sides.

OK, and for these deals, I assume you use your own funds to acquire and rehab.

With private money, you're now substituting some individual's funds for your own.

However, unlike when it was just your money, you'll need to proceed with extreme caution to make certain your lenders are well protected if/when things don't go as planned.

Private lending is its own whole profession. It isn't something you can pick up in a few Forum posts.

Honestly, if you need private funding, you're best off finding an experienced private lender and doing at least one deal with them to at least see what's involved, long before involving your friends and family.

That is, unless you don't particularly like having friends and family...

Have you already closed your first buy-and-hold deal?

Congrats on finding willing private lenders!

A few observations:

1. Your cash flow calculation is missing vacancy, maintenance costs, and capital expenses. Taken together, they'll likely cut your estimated cash flow in half.

2. You don't specify, but if you're using $110K in borrowed funds to purchase a property worth $110K, you're asking your private lenders for a 100% loan-to-value (LTV) loan, which is super risky for them and for you.

3. Most private lenders don't plan to lend forever, so you should consider how and when you'll get them cashed off.

4. The going rate for private money is considerably more than 7% (generally 10-14% in 10/2024). Your lenders may not know this yet, but eventually they're going to find out. You should plan accordingly.

If these are "friends-and-family" type private lenders, I would urge you to tread very carefully. Borrowing from loved ones is a minefield if not done properly.

Ask me how I know this...