Investing with family - get a promissory note?

Columbus, Ohio
Starting Out
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Investing with family - get a promissory note?

Kyle Morse
Member since 2019 · 1 post · 1 vote

Hi, 

I'm a relatively new investor - I currently own one duplex that's fully rented, and have one completed flip property on the market to hopefully sell soon.

My next step is partnering with a family member - an uncle - who has expressed an interest in providing me with financing to help me scale my business. To start, we would partner on flipping a single family home.

My question is - what documents should I set up with this family member? 
A promissory note? An LLC? Anything in particular to make sure we're all set up to buy a property?

He would be providing 90-100% of the financing, I would be coordinating the rehab process.

Thank you for any advice you're willing to provide.

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Zac Mckenzie
Contractor · Columbus, OH · Member since 2017 · 85 posts · 83 votes
2y

It really comes down to what lets you sleep at night, there isn't really a right answer to your question. An LLC is easy and gives you some protection as long as you abide by the rules. Setting up a separate bank account is also easy and free in many situations, this will allow you to keep things clean especially at tax time. Having a simple written agreement of loan terms and responsibilities of the two parties is always nice and it doesn't have to be from an attorney just something clear that you both understand and agree to with a signature. And it never hurts to have a respected professional that you know look things over as a second set of eyes. Don't overcomplicate things early on, as your business grows you will add layers and professionals to your team.

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  • Zac Mckenzie
    Contractor · Columbus, OH · Member since 2017 · 85 posts · 83 votes
    2y

    It really comes down to what lets you sleep at night, there isn't really a right answer to your question. An LLC is easy and gives you some protection as long as you abide by the rules. Setting up a separate bank account is also easy and free in many situations, this will allow you to keep things clean especially at tax time. Having a simple written agreement of loan terms and responsibilities of the two parties is always nice and it doesn't have to be from an attorney just something clear that you both understand and agree to with a signature. And it never hurts to have a respected professional that you know look things over as a second set of eyes. Don't overcomplicate things early on, as your business grows you will add layers and professionals to your team.

    2Reply
  • Jake BakerBusiness Member
    Flipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 695 votes
    2y

    @Kyle Morse

    I always get things in writing, especially with family and friends. A simple docusigned promissory note will do. 

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  • Jason Allen
    Attorney · Columbus, OH · Member since 2023 · 193 posts · 145 votes
    2y

    There are a lot of benefits to getting a promissory note from both a legal and accounting perspective.

    0Reply
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