There are 4 documents that you need in order to secure your private loan:
1. Promissory Note
2. Deed of Trust or Mortgage
3. Title Insurance
4. Hazard Insurance

Promissory Note is a legal document where you as a borrower, makes a promise to pay the private lender a sum of money at a specified time under specific terms. It can be from you or the entity where you are borrowing money for.

Deed of Trust or Mortgage, depending on which state you live in, is a security instrument that allows the lender to secure their note against the property. This document is recorded in the county where the property is located. It gives the private lender assurance that in the event that the property gets sold, the underlying loan has to get paid before he can release the lien.

Title Insurance is a document that ensures that any issues that come up on the title report are resolved before selling the property . This will protect you the investor, it will protect the private lender, and it will protect your buyer. You want to make sure that your buyer gets a clear title in order to close on the property and get your private lender paid and most importantly, you get paid.

Hazard Insurance. You want to make sure that your property is protected against hazard or risk whether it’s a fire, flood, vandalism, etc. Having enough coverage for these types of catastrophic will protect you and your private lender in the event something happened to the property, you are able to pay the loan and replace your investment. 

The other thing that I have personally is a life insurance policy for myself and the entity being the beneficiary. This is an added security for my private lenders in the event that something happen to me and I die, then my company will receive that money to pay my private lender.

When you have all of these documents to secure the private lender, your private lender will be feel better and more likely to do business with you over and over again.

What is private mortgage pooling? This is when you put more than 1 lender on a single loan. Is this legal? Well, there are ways that you can do that will allow you to pool mortgage legally.

The first one is by doing a small syndication to where you create a small company offering. Syndication is where you have a number of investors and each of them lends certain amount of their money in the syndication in order to buy a property. This will require an SEC attorney to set it up, file all the necessary documents to the State and/or Federal Securities and Exchange Commission, and create the Private Placement Memorandum for investors. With syndication, you can get up to a certain number of accredited investors to participate depending on the type of SEC exemption you want to do. Accredited investor is someone who has a net worth of $1 million dollars or more, or had an income of $200 thousand dollars a year as individual for the last 2 years and they anticipate to have the same for the current year,  or $300 thousand dollars a year as couple for the last 2 years and they anticipate to have the same for the current year.

If you plan on getting non-accredited investors then you have do to a much more detailed disclosure that you have to put together and this could be very expensive for an SEC attorney to do.

If you just want to borrow money from private lender and each has the same amount of money then you can put each of them on different note positions sequentially such as second position, third position, etc. You can also do fractionalized note where each owns half of the note.

The other way where you can use private mortgage pooling legally is by creating an equity partners where you have 2 or more private lenders pooling their money together to buy a property and then split the profit at the end. One caveat to this, make sure that you have an existing relationship with these people prior to bringing them in because if you don’t you could violate the SEC regulations. 

So while mortgage pooling is possible you have to make sure that you do it right. If you don’t want to do syndication or equity partner and you just want to secure them with a single loan then you cannot put 2 lenders on a single note. You have to put them on individual loan.

When people are borrowing private money loans for single housing investment, they are not sure whether they should put the note on the property that they own, or on the property that they want to buy, or put it on their own personal residence.  Either way, it is perfectly fine as long as you are securing the note with real estate and secured promissory note. In order to do it, you need to utilize an instrument such as Deed of Trust or Mortgage Deed and provide a Promissory Note to the private lender.  These documents are important to your private lenders to make them feel at ease and be able to trust you with their investment.

Working with private lender is a relationship base. In order to build your lender coalition, it is important that you get to know them, find out what they are looking for, what type of return they want, whether they need a monthly payments or if they want interest accruing, how much money they have to invest, how soon they need to get that money working for them. The more information you get the better for you and once you have that information then you can decide which lender to put on which property. Lending private money for real estate investors is very common. You just need to make sure that everything you do is above board.

You also need to ensure that there is enough equity on the deal to make it attractive for the private lender. This would also be beneficial for you because you are not over leveraging the property and it will give you some room to adjust in case the market value changes. Private lenders would feel that their investment is secured knowing that there is 20-25% equity on the deal. Remember, people would lend you money based on these 3 things: they know and trust you; someone they know referred you; and because they know that you’ve got a screaming deal.

Private money is the lifeblood of our business. So, if you secure the note and make sure that their investment is safe they will be happy to work with you on every deal. Our goal as an investor is to get immediate cash loans for properties without having to go to the bank and private lenders can provide that for us.