Found private investor...have some concerns - Posted by Tyler

Posted by Bud Branstetter on December 10, 1999 at 12:27:55:

You can use any life insurance policy. You send a letter to the company saying you want to add a beneficiary for a specific amount. Since you are directing it and it is not a requirement then you will be able to change that beneficiary at any time.

On money in an account-consider the stock broker type accounts. They can be set up as checking and can be invested at better returns in money markets for the short term.

Found private investor…have some concerns - Posted by Tyler

Posted by Tyler on December 08, 1999 at 23:08:52:

Hello friends…

Had a good day today.

About 3 weeks ago, I got a call on one of my “Fixer Upper” ads from an older fellow (sorry, Jim). I could tell right off the bat, that he wasn’t a RE investor. After some questions, I found out that he was really just someone who had inherited close to $200k and was looking for a place to invest it.

I quickly switched hats and started telling him how I work with investors…giving them an EXCELLENT return on their investment, safely secured by Real Estate.

I couldn’t help but chuckle at his enthusiasm over (yeah I know I’m generous) a whopping 8-9%!

When I saw that these numbers were turning him on, my determination to keep him on the line really started to grow.

So after educating him bit on some different scenarios, I told him that the next step would be for me to just call him when I had a specific deal to work with.

Three weeks later.

I called him on Monday, to tell him that I’d found a property that I was looking to put private money on. I had found a 85-90k ARV property, and put it on contract for 56k. I told him I wanted 60 (which would cover purchase + repair costs).

We met at the property yesterday.

Now, I should point out that he is completely foreign to RE investing. He really has no grasp of what market values are on the properties in our area.

He starts out playing very safe. Makes a couple calls on my business (information, etc.) before we meet. On the phone asks LOTS of questions. He’s being very cautious…and it’s showing. After all this is the most money he’s seen in his life! He’s in his 60’s and has received an inheritance of about 200k (ok I already said that).


We meet at the property, I show him around, we talk, we go to coffee.

I show him comps, show him the title report, copies of old checks from previous deals, etc. You get the idea…I sell myself, the deal, my business, and my game plan.

I had 2 phone conversations with him after this.

Then tonight he calls me. He says that he has decided that he “want’s to work with me”. Evidently he put in a request this afternoon to have his funds transferred out of the trust account, into his savings.

He’s ready to roll.

We agreed on 9% (Call me a nice guy). No fees. No appraisals. No points. No bull.

Bottom line is, the guy trusts my judgement on properties. He’s not worried about anything like LTV or me having cash in the deal. He’s not asking for P&D reports, P&L reports on the corp, or anything of the sort! (Although I did show him my personal credit report only cuz I have good credit)
I’m sure the guy will even make the loan to my corp!


Obviously I’m stoked. This is great! But, it’s so-hassle free, that I have to wonder if I’ve covered all my bases (and my assets). I have to wonder if it isn’t quite as easy as having the title company just create a note between him and I, and him bringing the funds to close.

Are there any agreements that we should have outside of escrow to protect my relationship with him?

Do I have any liability concerns with him (outside of the note on the property)?
Do I need to worry about anything to do with securities laws because of the way we made contact (my company’s ad)? Is there anything the law would require that I give him in order to make a private loan to me?

This is new ground for me, so I just want to make sure there’s nothing that I’m overlooking.

I really appreciate any input I can get from those of you who work with these types of relationships.

Thanks in advance…looking forward to Atlanta!!


You are reciveing great Advice here!! - Posted by Mark R in KCMO

Posted by Mark R in KCMO on December 09, 1999 at 15:46:28:


Great Problem to have, huh… Trying to figure how best protect yourself and your investor.

I agree about the insurance, personally I have a policy that covers all outstanding debt upon my un-timely demise.

It was also mentioned about dealing with the trust company directly. I have not done this but I think it would be a good idea for the simple reason, that the local trust company where my IRA is located knows about the other people lending and what notes etc are being liquidated.

I have approached the trustee about informing others that I would be interested in buying selling notes to other IRA’s, Trusts, or holding companies.

Nothing has occured yet, but I am confident that something will in the future.

As far as securities laws and such, in MY OPINION (not to be construed as legal advice) you were not specifically looking for money, and I am guessing that you both are located in the same state, and you are not offering “Blue Sky” returns…

So it appears that the People, Paper, and Property exclusions are available to ya.

(translates to your doing fine)

As Dan says, I use a title company to draw docs, and issue insurances. Make everyone feel secure to know that a 3rd party is looking over our shoulders to assure that the t’s are crossed, and the i’s are dotted.

They did have Disclosure docs that they provide for “Owner Financing” that were easily converted to private party financing.

Great to hear about your success!

Mark R in KCMO

Coincidentally I found… - Posted by DanM(OR)

Posted by DanM(OR) on December 09, 1999 at 11:49:37:

and investor on Tuesday with $400k. He’s a Commercial Realtor who I have been marketing notes to for three months now. He finally brought me a deal where he, personally, was going to sink $400k into a commercial property with a 13% Cap Rate. The Sales Price was $1.295M. We started to talk about notes and how we could do the deal. I told him the yields we look for with commercial start at minimum 12.5% and go up from there. He started to think while we were talking and said", why don’t I just give you my $400k and let you invest it in notes? That way I wont have to worry about , leases, tennats, maintenance, etc." I said, “Yeah, why don’t you?”

The next day I threw him a very small Hard money deal that had a CLTV of 71%. I offered him a personally guaranteed note that was at 13% no points secured by a 15% 2nd TD with the above CLTV. The loan was for only $15,000. Not a ton of profit here, but I would make several points cash, some cash flow for 2 years and would start the ball rolling for access to that $400k.

Well, that was Tuesday and I still have not heard back from him. I think he is experienceing the fish out of water syndrome. A good start though, we will see where it goes.

This was great though for me personally because it forced me to research all that I had to do to set it up. Got some words of wisdom from my “Buddy” Mark Riddle and found a good Title Company to do it for me.

Congratulations on your find. I look forward to hearing how it all goes. Is 8-9% all you are going to give him? I wouldn’t feel right sharing a little of the back end with him to. I would think a little longer term. The longer he has that money the more he is going to look for ways to make it work. One of these stock market geeks might get him sold on the “15%” stock market. I am sure you would not want to lose him. Don’t be shy about sharing my friend. It will come back to you 10 fold.


Dan Matejsek

P.S. The insurance idea that David brought up was a good idea. Detailed escrow instructions regarding Death would also be a good idea.

Re: Found private investor…have some concerns - Posted by David Alexander

Posted by David Alexander on December 08, 1999 at 23:28:52:

Sounds to me your more trying to convince yourself. If you need now or sometime in the future when you have a few more deals you could put insurance in place so that in the event something happened he gets paid off. I would probably ask also what his wishes might be in the event something were to happen. An instance might be that if something were to happen to him maybe his wife inherits and then she’s your new partner and all the sudden she has different views than he did. I’ve even heard of partners insuring each other, to payoff things to keep the deals from exploding past themselves.

But as far as hard, no keep it simple. The last deal I did like that was 60k, 9%(bought the property for 53k),
deeded the property into a trust, trustee signed the loan docs(note and Deed of Trust) for the trust. Since sold it on a wrap for 80k(4k down, and 11.5%).

Hindsight I would if you have that much to tap into use a mixture of deals, some for him to produce the steady income and some to generate high yields, north of 30%, some to just turn for cash in short term deals.

Otherwise it’s like water and you drink it gone quick.
(or the other alternative just get really good at finding more of it)

David Alexander

Re: You are reciveing great Advice here!! - Posted by Tyler

Posted by Tyler on December 09, 1999 at 18:51:45:

Hi Mark…it’s been awhile!

You touched on something that got my attention. You mentioned that your title company already has a disclosure form for owner financing, easily converted to private financing. I like this. I’ll make sure and check with my girls (sorry, I meant Title Company) about that. I like the idea of avoiding a bill from my attorney–just for him to draw up a disclosure form that I may be able to get from my TC. Cool.

Regarding the Trust…

He told me that he wrote a letter to get the money transferred to his checking, but the motivation was twofold. Not only did he want to access it to fund this present deal with me, but according to him he was also pulling the funds because the company ticked him off. He said “he was tired of the way they were treating him”…so he’s pulling all his funds. Do I maybe suggest that he open a new account somewhere else and pull from there? Are there any advantages to him doing this?

I don’t see me having any contact with his people on that end, so I’m not sure how I would make any impressions there.

I also tend to wonder if pushing him to find a new trust account might create a problem with him getting in front of more people looking to “advise” him. Wouldn’t want anyone convincing him to do “something else” with his money.

Just some thoughts…

One more thing–about the insurance. I’m not sure I’m clear on exacly what type of insurance you’re talking about. Maybe you could clarify…

Thanks, Mark.

Re: Coincidentally I found… - Posted by Tyler

Posted by Tyler on December 09, 1999 at 12:08:18:

Hi Dan-

Congrats to you!

I agree with your final remarks about keeping him around. I posted this over on NG1, and in the thread over there I told Piper some of my plan. I’d like to keep him under my wing, and use the money as quick short term funds. After the deal’s done I can refi and give him a generous kick back. Ultimately, I want to keep this relationship strong, and keep the cash available so I can react to bigger deals than I can fund, in a matter of days.

Good luck with your guy…


Re: Found private investor…have some concerns - Posted by Tyler

Posted by Tyler on December 09, 1999 at 24:29:43:

Hey, Davey…

What is it you think I’m convincing myself of?? (I am still pinching myself, if that’s what you mean…I’ve been trying to find money like this for a long time now)

In a nutshell, my exit plan with this and others is to sell on LO, get buyers financed with my MBroker (he’s goood) within a year or sooner. This will turn his money around fast so I don’t have large amounts tied up indefinately.

I agree with what you were saying about not using it all up for holders. My plan is to use a good portion of it on some quick turn around deals where I don’t have enough cash on hand (or credit line left)so I can give him some nice chunks of return…fast. I think this will keep him under my wing. Almost like increasing my credit line by 100k. Nice quick short term funding. Keep him happy, and he’ll stick around.

My questions pertain to the legalities. I keep thinking of some of the securities issues John was bringing up in Utah, and wonder if I’m in the clear…