private investor financing agreement letter

Financing, Hard Money Lenders, Private Money
1

Hello,

I am raising some funds for an investment. I am looking for a contract document that says if an private investor gives me X% of the total price of the property, they will get X% of the profit when it is sold. Can anyone point me in a direction for a legal document that I can use for this sort of agreement? Or if there are other suggestions for how I can address my investors, comments would be appreciated.

Thanks.
Greg

2

Ask a lawyer to draft it up with regards to your states laws.

3

Not legal advice, just my own experience.

If this is not an involved long term agreement that includeds multiple parties you can use two separate instruments. That way the details of the future sale aren’t recorded with the mortgage for all to see publicly.

I used a statutory form note and mortgage for the loan and the other was a partnership agreement for the sale of the property. If you keep it simple, it can be simple.

I couldn’t sell the property without it being cleared by the lender/partner so the lender had complete security.

Jeff

4

Thanks for the replies…

re your post Jeff

“other was a partnership agreement for the sale of the property.”

Here is my deal to illustrate…I think this is what you mean. Purchase price of $120K secured with a deed to secure debt by my bank. This is first lien. My money partner gives me $10K for example for repairs. We write up a partnership agreement that states I cannot sell the property without his permission or without paying his loan in full, and if I default to him then he can assume my position of ownership and owns all of the interest in the property but of course is obligated to pay my note. (I’d actually draw this up that he can have my interest but will need to get his own financing or literally assume my loan with my name being removed from deed to secure debt with bank.)

We have a note prepared with my repayment terms to the private money investor.

Question - do you record a modified deed that shows his interest in the property?

Thanks again.

LK

5

REMEMBER EXPERIENCE, NOT ADVICE. ???

I am not sure if I’m getting you right. Sometimes the intent of the deal gets cloudy. Originally it appeared as if a partner were funding the purchase. Now it appears a bank is doing it and a partner is helping with fix up money.

This scenario assumes:

  1. you use a bank to buy the property
  2. A partner is lending you repair money.
  3. Upon sale, the partner gets his money back and a share of the proceeds.

Let me know if I’m wrong.

Solution:

  1. Bank gets the 1st position mortgage for 120k.
  2. Money or fix up partner gets a 2nd position mortgage for his 10k.
  3. Partnership agreement is drawn up stating that upon sale, the proceeds (all moneys earned after mortgages, selling expenses holding costs, etc.) are to be divided in the following manner: 50% to you 50% to him or whatever % you agree to.

Result:
You partner’s interest is protected because any attempt to sell the property, the lenders have to be contacted to provide a payoff figure. That is when he would provide the payoff amount and his partnership agreement to the attorney or closing agent. That agreement would have to be satisfied or he would not release the lien on your property.

I trust you understand this does not guarantee that your finished house will sell for enough money to pay everone back and give you each a profit. It’s still a risk for all. Less of a risk if you have done your research and calculations properly.

Jeff

6

Hey Jeff, thanks again for your reply.

You understand the situation partly correct.

See my comments after your items below…

Solution:

  1. Bank gets the 1st position mortgage for 120k.
  • Correct
  1. Money or fix up partner gets a 2nd position mortgage for his 10k.
  • This is what I am trying to avoid and is the essence of my question. If I default on the first, my private money lender is not secured being in second position. So the question is how to give him security for his money he is putting in the deal? Second position is secure from sale but not from default on the first.
  1. Partnership agreement is drawn up stating that upon sale, the proceeds (all moneys earned after mortgages, selling expenses holding costs, etc.) are to be divided in the following manner: 50% to you 50% to him or whatever % you agree to.

-Yes, we will not split profits, he will just get paid interest on his money which is why I will create a note for his money. I suspect the partnership agreement is how I secure his money as I stated in my previous post.

“We write up a partnership agreement that states I cannot sell the property without his permission or without paying his loan in full, and if I default to him then he can assume my position of ownership and owns all of the interest in the property but of course is obligated to pay my note. (I’d actually draw this up that he can have my interest but will need to get his own financing or literally assume my loan with my name being removed from deed to secure debt with bank.)”

Making more sense as to what I am trying to accomplish?

LK

7

Ok, now we’re cooking.

If he is only getting interest on his money, the note and mortgage are all you need to satisfy that. If he is only getting interest on the loan as payment, a partnership agreement is not necessary.

If you default on the first, he is protected to the limits of the excess of the first mortgage and collection costs. The equity is definitely a factor here.

You can offer him security interest in multiple assets. In addition to the second on the property, It can be anything of value that you have. Personal residence, another property, car, truck, tractor boat or any combination of all. As long as you agree, it can be done.

Don’t laugh. Additional security is additional security.

What does your partner say HE needs to feel secure?

I went through exactly what you are going through.
My money lender had me document my first deal with him dollar for dollar day by day. Now he just sends a check. It gets easier.

Jeff

8

Fortunately, this money lender is a friend who saw me in the business for a year or so. He runs his own business and has some extra cash laying around only making 3-4%. He asked me if he could lend me some money and improve his investment of his excess cash. So, there is a high degree of trust.

To date he has lended on entire purchases…$100K + deals where he is in first position and loves our arrangement.

That said, this is still business and I want to make sure he is protected. He would be comfortable with any security reasonable.

I’d like to contain all of the security to the deal and not bring in other assets…if I make a dumb move or something unforseen happens, I’d like to keep my car or boat.

I appreciate all of your comments and ideas…Not to beat a dead horse but let’s come back to my thoughts on using some partnership agreement to contain his security with the house. Any feedback on the best way to do this while keeping him out of a true second position?

Again, I am willing to give him the property and all potential equity if I default to him as my security for his $10K. Just need to make sure I structure the paperwork the right way.

Thanks.

LK