Best way to securely Lend money to a General Contractor
 Any thougths are appreciated. Here is the background:

Location: Charlotte, NC

  
**Background:**  
I know a local General contractor who is looking for a loan for his next project. I have seen his work onsite and He is very good at  what he does.  
This loan will be used to close  the property and for pre-construction development and for securing  construction loan.   
This loan is structured as debt(and not equity) with a  decent annual rate of return.  
**Question:**  
I have never loaned money directly to a GC before. What is the best way to make sure my Loan is secure.  
Looked up a few posts online and sounds like a couple options are 1)  joint-tenancy on title, or 2) a deed of trust. I dont quite understand  the pros and cons of each , or is there a better way to structure this.  
Planning to reach out to a few local RE attorneys but wanted to get thoughts here as well.
[{"id": "hu7zseb", "text": "Very smart to cover your back on a loan like this. \nNot a fan of joint tenancy as that opens you up for a world of liens, collections, and legal risks (ex: someone being hurt on property). \n\nAs this is simple Debt, how about a simple Promissory Note? Terms can be simple, anticipated interest can be spelled out clearly, early or late payment topics can be spelled out, and collateral/recourse/non-payment can be stated in black and white.", "replies": [], "depth": 1}, {"id": "hu7ztrf", "text": "Deed of trust is what a bank would use to secure the note against a property. It generally provides for a foreclosure process that doesn't involve going to court.\n\nJoint tenancy would make more sense in an equity deal. Unless the GC agrees to the sale, enforcing your loan would likely involve going to court to force the sale.", "replies": [], "depth": 1}, {"id": "hu863xz", "text": "Construction lending has specific risks beyond a straight amortizing loan secured by real estate, namely construction draws and mechanics liens. Be sure to discuss this specifically with your attorney and be prepared to do monthly draws with conditional and unconditional lien waivers. In my home state a perfected construction lien has super priority even over a 1st position Deed of Trust. If you are unfamiliar with this process I would look to have someone who does manage the draw process.\n\nBe very careful about who you\u2019re doing business with, over my career I have seen lots of fraudulent construction draws. Oftentimes these guys have too many irons in the fire and will rob Peter to pay Paul. I was doing acquisition and development financing in 2008 so I\u2019ve got scars.\n\nOne last thought is that if you enter into a joint tenancy you are not in a lending relationship, you are equity and you are opening yourself up to much more additional risk and you should be compensated for it. Development financing is expensive because it is risky, equity is more expensive because it is riskier, you should be compensated appropriately.", "replies": [], "depth": 1}, {"id": "hu8ill2", "text": "I like the don't do it idea. Lots of great ways to securely deploy capital. This doesn't seem like one.", "replies": [], "depth": 1}, {"id": "hu8kghp", "text": "Lots of useful advice. I\u2019ll just expand that you need to have sufficient collateral bevy I\u2019d assume this guy won\u2019t pay you back a penny. \n\nHis ability to do good work is irrelevant. In this market, demand etc, he clearly is bad a business and this loan isn\u2019t going to change that. \n\nA simple secured Note works, but you need to have enough cushion to pay all subs, all materials and a slew of liens ahead of you. If you feel comfortable including that amount, then go for it.", "replies": [], "depth": 1}, {"id": "hu9dzdg", "text": "I work for a GC and I just did a double take reading your post. You are planning on lending money to them prior to the GC starting a project for you? \n\nUm\u2026what the heck?\n\nA GC worth their salt isn\u2019t asking a CRE for a loan - that\u2019s a serious red flag. Why aren\u2019t they securing it through a bank? \n\nI\u2019ve read this post 3 times and I\u2019m still so confused as to why you want to give a GC a loan.", "replies": [{"id": "huc6mr3", "text": "This is an acquisition and development loan, which are basically impossible for all but the most well capitalized and established developers to secure from a bank.\n\nThe banks learned a very hard lesson in the Great Recession. In my area they were handing out A &amp; D loans like skittles and lost their asses when the housing market cratered and the value of \u2018paper\u2019 lots and even fully developed lots fell to essentially zero and all the borrowers went tits up. Most of the community and regional banks here went bust because of it.\n\nThe space now is typically financed by REITs, private money lenders and investors charging hard money rates. I agree though, it sounds like OP is setting himself up to learn a lesson \u201808 style.", "replies": [], "depth": 2}], "depth": 1}, {"id": "huajntw", "text": "Also take a lien on other assets (personal and/or business) of the GC to further secure yourself and mitigate the construction risk. If the GC has no other assets realize this is a real crapshoot.", "replies": [], "depth": 1}, {"id": "hud2af3", "text": "On the GC's net project, you can lend against the property they purchase; in other words, put a mortgage on the property they are flipping. You will be a private lender in this situation, and you will have the mortgage secured by the property. In the case that they default, you can take back the property. Make sure that they have some skin in the game and that the amount you are lending is less than the current value of the property.", "replies": [], "depth": 1}]