How to Close a Private Money Deal

By Susan Lassiter-Lyons | Real Estate

You’ve found a money partner, you’ve made the presentation, and your partner has agreed to invest with you. How do you close the deal?

The process itself is pretty much the same every time

  • Prepare the loan package and schedule the closing.
  • Prepare the closing instructions for the title company or the closing attorney, and arrange for the funds to be wired.
  • File whatever state forms you need to file.

(If you are a member of the Getting the Money Program, you can download all the documents you will ever need from the site. If you need money for a deal, this is also a great program to check out.)

So, let’s break the process down…

The Loan Package

This consists of a promissory note and a mortgage or deed of trust, depending on whether yours is a mortgage state or a deed of trust state. As the borrower working with a debt partner, you have to take control of this process.


I couldn’t have said to Aunt Sally after she gave me the first $150,000, “Cool. Prepare the docs, and I’ll see you at closing.” She would have said, “What the heck does that mean? Are you coming to Christmas dinner?”

With one-to-one transactions, I typically take responsibility for this. If you’re working at a super-high level with millions of dollars and multiple investors, you might have your attorney prepare these documents.

  • A promissory note is one party’s written promise to pay another party a particular sum of money either on demand or at a specified time in the future.
  • The mortgage or deed of trust is the debt instrument. It’s secured by the property, and you’re obliged to pay it back according to the terms that you specify and agree upon with your private money partner in the promissory note.
  • You might need an LLC resolution. You should be borrowing in the name of your entity, so you should already be in an LLC. If you haven’t written into your operating agreement that you have the authority to borrow money on behalf of your LLC, you will have to fill out this little form. It says, “I can sign for a loan and take on financing on behalf of the LLC.

Insurance; Your Added Security

I recommend having a title insurance policy and a hazard policy. You should have an owner’s policy in the amount of the purchase price to protect you against title defects. It will last as long as you own the property.


You should also have a lender’s policy to protect your private money partners. It’s for the loan amount only, and it protects the lender for as long as the loan is in place. This stuff is a little pricy, but is extra security that you can offer your private money partner.

Hazard insurance is like a homeowner’s policy, but it’s on your investment property. Your hazard insurance policy names your lender as the loss payee. The piece of paper that says, “Yes, we agree to insure you,” is called a binder, and you get that at closing.

Let your hazard insurance agent know that the loss payee or the mortgagee (those two terms are used interchangeably) for the policy is your private money partner or your lender. If the property burns down, a tornado knocks it down, or flood waters carry it off into the ocean, the check doesn’t come to you; it goes directly to your private money partner.

The Disclosure Document; What You Say Is What You Do

You can write a disclosure into your promissory note, in a separate addendum, or in your private placement memorandum.

The disclosure document should include a few key points.

  • The business of the company from your business plan – something as simple as “We are in business to do X.”
  • Risk factors – Real estate is a risky business that can be affected by market downturns, a new competitor, etc.
  • How you will use the proceeds.
  • Key personnel involved in the deal.
  • Any exemptions used. Each state has particular exemptions such as you’re exempt from registering your security or your offering with the SEC. A list of state exemptions can be found at the members’ area of Getting the Money. (Yet another reason to sign up)

Record-Keeping and Your Master Investor List

You should keep a file for each of your investors and private money partners. Your records should include

  • An executed (signed) investor questionnaire.
  • An executed subscription agreement. A subscription agreement is a commitment. It’s a document that your investors sign saying, “I have $X and I’m committing that amount to your deal.”
  • A copy of the promissory note and a copy of the check or wire that your private lender sent to the title company or closing attorney. If you are required to file form D or U2, keep a copy in the file. Include a copy of the master investor list or spreadsheet. (If you’re like huh? I have three words for you: Getting the Money)

A word on the master investor list…

You don’t need an expensive software program, all you need is a spreadsheet that lists their name, address, phone number, and email address. I list exactly how much they have available in private money, titled “Total Capacity.” It’s their total capacity for lending.

I also list how much they have outstanding with me and how much they have left over or available for me, and any notes I want to include. I use this list to keep track of birthdays and anniversaries so I can send cards or commemorate anniversaries of deal closings.

It’s a celebration, and I am cool like that.

Closing Instructions; Heads Up

Send closing instructions to the title company to explain what’s happening in the transaction. Tell them what checks to cut out of the closing proceeds including insurance, rehab cost, and appraisal fees.

Let them know you want to approve the settlement statement before they fund the deal, which outlines how the money is going to flow and where all the money is going to go.

Let the title company or closing attorney know if you’ll be bringing the loan documents (the promissory note and the deed of trust or mortgage) or if you want them to prepare them.

I personally prefer to prepare my own note and deed of trust and then have the title rep or the closing attorney look them over just to make sure I haven’t missed anything. The title company files the deed of trust or mortgage. The original note doesn’t have to be notarized; it usually stays with the lender until you pay it off.

Don’t file the deed yourself. Let the title company or the closing attorney do that. I’ve made this mistake before and can tell you to save yourself the agony! (It’s a long and crazy story. Guess where I share it…Getting the Money)

A word on closing instructions…

It’s just a simple email, or you can write it up in a memo and attach it to an email. Send it to the closing attorney or the title rep. I had an attorney prepare some documents for me, and he charged me $350. Did I pay the amount out of my pocket? No, I paid it from the money that my private money partner was wiring and loaning me. It was part of the loan transaction.

Your Investor’s Money Is Not for You

Now you’re getting the money for real. It’s time to have your private money partner fund the deal. You call them up and say, “Partner, it’s time. Wire the money to the title company (or the closing attorney).” Provide the wiring instructions you get from the closer.

Wiring instructions is just a fancy way to say “bank account information.” If your money partner has checkbook control, they can just cut a check to the title company. Those funds go into escrow, which means the title company holds them until it actually makes those disbursements and the deal funds. Never have your private money partner cut the check directly to you. Never! You want the title company or closing attorney to record the disbursements so there is a formal money trail in case there are questions about it later from an investment partner, or worse, an SEC investigator.

A word on the money…

Don’t let your money partner pay you directly!

The Payoff

When you accomplish whatever it is you wanted to accomplish with your property, the title company or closing attorney will need a payoff statement to pay off your private money partner when you sell or refinance.

This is a letter written on behalf of your investor that lets the title company or the closing attorney know exactly how much money your private money partner is entitled to.

Here is what to include…

  • The property address
  • Loan number
  • Lender’s address
  • Loan type (I always just put “conventional”)
  • Say that this payoff is good through whatever date, and provide the principal balance, the accrued interest, and the total loan to be paid off.

What you’re saying is “Here’s what we owe today, and if it closes in a week here’s the amount of additional interest that’s going to accrue that you’ll need to tack on.” I always provide a per diem interest rate.

A word on a delayed closing…

Your partner can use that rate to calculate the interest and add it to the payoff. Have your private money partner sign the letter, and fax it to the title company or the closing attorney. Your private money partner can go to the closing if they want to and get their cashier’s check right there, or they can have it sent directly to them.

Releasing the Lien

Once the loan pays off, don’t forget to release it.

That’s another mistake I made once. It’s a humdinger that we discuss in Getting the Money.  (In case you haven’t signed up yet)

A word on releasing the lien…

If you tell your Aunt Sally that she needs to file a release of lien, chances are she’s going to scratch her head and say, “I don’t know what that means. What are you bringing to Christmas dinner?”

So, have your servicing company prepare the release for them, or help them yourself. The county needs to be notified by the lender so it can release the lien. You can usually just download and prepare an e-file that can be sent to the county online. (Guess where I have sample lien releases)

The title company will often handle the release, but if you are paying your partners without a title company you will need to take care of the release.

That’s it!

That’s how you close your deal. Now you are ready for the next one.

If you’re like, “Susan, I don’t have a next one because I don’t have any money to fund the deal” – Please start reading again from the top!

Have fun. Create value.

Leave a Comment:

(4) comments

Susan—What’s up with giving away the “Keys to the Kingdom” ? You continuously and “generously” share your wealth of real estate investing knowledge and mitigate the fear of the unknown with solid-performance based systems and processes that WORK: transitioning your students to their seat inside the “Winners Circle” of private money deal closings.

    Susan Lassiter-Lyons

    You know it!! Thanks Andrew!



freddy weeks

awesome Susan.

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