Lance Edwards, President, First Cornerstone Group, LLC.
When putting together your real estate deals, you need to be sure that you know what documents may be necessary to complete the deal. You need to be mindful of these documents when structuring your deal. You need to have your own attorney when it comes time to actually prepare these documents, but here is an overview of basic documents.
1. Promissory Note: The promissory note includes the amount borrowed, the interest rate and the terms of payment. It’s basically a “note.”
If you are doing the deal with your bank, then the bank will draw it up. Typically, the lender draws up the lending documents. If, however, you are dealing with private individuals, you will most likely need to draw it up for them unless they have their own documents. Once you have a template created for your promissory note, you can reuse it for other deals.
2. Deed of Trust: This is the security instrument. It’s another term for the mortgage.
This defines the requirements of the borrower to keep the property in good condition, pay on time, and maintain insurance. These are all control and low risk attributes built into it. It shows the lender how he will be protected and it shows the borrower’s obligations. You want to emphasize that there will be a recorded formal document between you and the investor and it shows the investor’s rights if you do not perform.
3. Assignment of Income and Receipts: If you are going to be holding a property for awhile, you are going to be assigning the income to the lender. You are going to assign them the rents and you are going to keep them as long as you keep paying your note. If you do not perform, then the lender will take over the rents on the rental property.
This is yet another protection for the lender. The lender will license back the right to you as long as you pay the monthly mortgage payment.
4. Lease Option: This document says that during the time of the lease, you have the right to buy the property.
Again, always consult with an attorney when drawing up any legally binding documents. Not only are these documents legally necessary, but they afford your investor more control and add low risk to the deal. These documents are just examples of ones possibly needed to complete a deal.
