Private Money Partnering

Protecting The Private Money Deal

Chapter L. Protect Yourself And The Deal

How Could You Protect Yourself?

Forms:

Notice Of Option To Purchase
Affidavit And Memorandum Of Agreement For Purchase And Sale

How Do You Protect Yourself?

Be Careful What You Promise

Protect yourself by not saying something you can’t live up to, like a guaranteed rate of return which is stretching realistic expectations for a project. The Money Momma/Man may want a guarantee In lieu of experience if Debbie or Dan is just starting out. But does your stock broker personally guarantee an investment? No. To get something rolling you might choose to offer some kind of guarantee, but the reality is, how can you back that up if something goes wrong? Something probably will go wrong. Listen, Murphy’s Rules were written for real estate investors, among other people.

How about this one? Debbie and Dan have a renovation project underway with a money lender involved. During the rehabbing the lender is putting up the funds. This venture Is held in a trust with a monthly mortgage payment due every month, even while Debbie and Dan is in the middle of rehabbing. What happens when Dan dies unexpectedly in an accident? This is a very real example folks. How is Debbie going to make timely payment of funds to the mortgage lender over here, at the same time as having to deal with all the aspects of a family catastrophe? How will the project be able to pay the investors the yield they were initially expecting, because the project due to unforeseen circumstances may have to take on a lot more expenses. But that is life; it happens.

And what about loss of capital? Or of time? Are you as the Money Momma/Money Man going to be indemnified with a guarantee? Granting indemnity means that someone will be restored to a financial position they were in before a loss. Can Debbie or Dan guarantee that money will not be lost? Can a stockbroker? Debbie or Dan may or may not be able to do that, or may or may not want to.

When I was getting started, full of optimism and confidence, sometimes I guaranteed a certain result. Everything was fine until the first one where things didn’t quite work out according to plan. However, my partners knew that I’d do everything I could to make it work. I shouldn’t have guaranteed things personally. The project should be able to handle it no matter what, because the project is an investment. But that’s another reason why people shouldn’t be investing with anything except discretionary money.

Be A Knowledgeable Participant

Neither partner wants the risk of financial loss, so what are the different ways of handling that risk?

♦ You can AVOID the risks by saying that you won’t buy in a certain neighborhood, and that you don’t feel comfortable dealing with the risks found there.

♦ You can TRANSFER risks by saying to your partner, “Well, I’ll do this, but you’re responsible for that,” or “Let’s have his firm handle that problem since they have experience with similar things.”

♦ You can ACCEPT the risk, or SHARE it, by saying “We both need to help out here.”

♦ Or, you can CONTROL the risk by doing your own due diligence, doing yourhomework, checking the comps, taking safety precautions by having the right type of insurance, and selecting good partners.

Protecting Private Money Deals - Chapter L (continued)