Real Estate Professional · Boca Raton, FL · Member since 2016 · 116 posts · 17 votes
I borrowed $120k from a family member to buy a primary residence for me and my family (I will pay him back $1k/m for the next 10 years, starting next month, or refinance if needed).
Last night I was talking to my wife, and we just realized that maybe we can come up with something better (even if she really want little place with a little yard for the kids).
Live in flip? Duplex? Turnkey out of state? Foreclosure? I really like the BRRR strategy but it's "impossible" to find sealant here.
I live in South Florida, everything I see expensive and market always hot, market uber competitive.
What would be the advice of an experienced investor to a newbie with a young family?
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Francesco Barbati If you borrowed $120K from a family member at 0% interest (less than that when you factor in inflation) for the purpose of a primary residence, honor that. They might look at it like "Francesco can pay me back with essentially what he would be paying in rent." That's a very different proposition than "I'm going to risk this money on a flip!" Providing a 0% interest loan to help your son/brother/cousin/etc. buy a home for his family is not the same as providing a 0% interest loan to fund that same persons investment strategy.
@Francesco Barbati just be careful and definitely do your research when it comes to Philly. I live close and its one of those areas that are block to block. Being that you would be an out of state investor, I would just really make sure you do your due diligence.
I don't want to scare you though because Philly has a lot of nice area's along with a big push for gentrification within some of the less desirable areas.
@Brian Garrett and @Francesco Barbati... the premium in Boca Raton is due to the schools systems. Check out the school ratings over any of the areas you're looking in and you will see the difference.
Jon you are experienced in this area, what would you tell me to do?
...and I just discovered how bad and updated is Zillow...
I borrowed $120k from a family member to buy a primary residence for me and my family (I will pay him back $1k/m for the next 10 years, starting next month, or refinance if needed).
Last night I was talking to my wife, and we just realized that maybe we can come up with something better (even if she really want little place with a little yard for the kids).
Live in flip? Duplex? Turnkey out of state? Foreclosure? I really like the BRRR strategy but it's "impossible" to find sealant here.
I live in South Florida, everything I see expensive and market always hot, market uber competitive.
What would be the advice of an experienced investor to a newbie with a young family?
Just my 2 cents, I think your family intend to lend you to buy a primary residence, then do that. If you are going to invest in something else, like duplex or BRRRR, then make sure to let them know how you are going to do with the money, I think it's a respect thing. And best wishes to your journey no matter what!!
At $1000 per month you are paying 10% interest to buy a primary plus taxes and insurance etc... That's not a great deal with current rates in the 4's.
That was the deal. I can pay $1500/m on primary home with no problem, so I can make it work and I have other cash in my personal savings. I could invest more than $120k, but that I get in a risky zone... which I might still do, since I have back up plans, but I wanna try to stick to $120k for now.
I believe David is WRONG about his "10% interest" comment. Rather, it IS "0%" if after 120 months, it's completely paid off! ie. $12k paid in year 1 results in $12k off the PRINCIPAL, etc!
Regarding the suggestion that was put to you to use the $120k as a DEPOSIT on something more expensive, that'll only work if Lenders don't care about it being already 100% FINANCED!
Q. How much of your OWN additional funds can you bring to the table to impress Lenders with?
I agree with those who suggest you ONLY use the $120k for the purpose it was loaned to you...
@Francesco Barbati just be careful and definitely do your research when it comes to Philly. I live close and its one of those areas that are block to block. Being that you would be an out of state investor, I would just really make sure you do your due diligence.
I don't want to scare you though because Philly has a lot of nice area's along with a big push for gentrification within some of the less desirable areas.
thanks for the mindful advice! Probably I should start with an easier area if I decide to go that route...
Rental Property Investor · Pasadena, CA · Member since 2016 · 164 posts · 149 votes
9y
In response to the 10% interest rate, not sure that's correct, seems to be 0% interest and considering the time value of money, seems like it's actually negative interest. This person lending you the $120K seems to be losing money here. Anyways, the answer to what you "should" do really depends on a lot of circumstances, those with the most weight relating to what you and your wife personally/financially want. If she's on board with you, it might be a good idea to get a 2-4 unit place, live in one, rent out the other 3. If you find a great deal on a SFR, may go for that, however note that we are seemingly at the height of the market, or at least not sure it has that much run left in it, so be somewhat wary.
Just my 2 cents, I think your family intend to lend you to buy a primary residence, then do that. If you are going to invest in something else, like duplex or BRRRR, then make sure to let them know how you are going to do with the money, I think it's a respect thing. And best wishes to your journey no matter what!!
Thank you very much for your 2 cents! Yes, I will definitely be clear with what I am going to do at the end.
At $1000 per month you are paying 10% interest to buy a primary plus taxes and insurance etc... That's not a great deal with current rates in the 4's.
That was the deal. I can pay $1500/m on primary home with no problem, so I can make it work and I have other cash in my personal savings. I could invest more than $120k, but that I get in a risky zone... which I might still do, since I have back up plans, but I wanna try to stick to $120k for now.
I believe David is WRONG about his "10% interest" comment. Rather, it IS "0%" if after 120 months, it's completely paid off! ie. $12k paid in year 1 results in $12k off the PRINCIPAL, etc!
Regarding the suggestion that was put to you to use the $120k as a DEPOSIT on something more expensive, that'll only work if Lenders don't care about it being already 100% FINANCED!
Q. How much of your OWN additional funds can you bring to the table to impress Lenders with?
I agree with those who suggest you ONLY use the $120k for the purpose it was loaned to you...
$11,000 only
And here was I, thinking that $1k/m x 10 years = completion! But now you're saying that you'll STILL owe $10k after making those 120 payments? In which case, you're being charged 0.833%/y.
Perhaps get it in writing that you won't be accumulating interest on THAT $1k interest per year?
(Or, did you mean something else when you wrote: "$11,000 only"?)...
Investor · Salt Lake City, UT · Member since 2016 · 89 posts · 41 votes
9y
@Christopher Giannino's advice sounds right on and like a solid plan. Since your already in a good position because of the generosity of a family member I wouldn't get in to too much risk. Its one thing to take on a high risk project when you already have a solid portfolio and cash flow coming in and another thing to risk it all on your first deal.
Real Estate Agent · Arlington/Marysville, WA · Member since 2015 · 27 posts · 39 votes
9y
i didn't read the whole thread so i hope I'm not repeating. honor what ever you told your family member would be happening with their money. zero interest ten treat loans only happen once in a lifetime. If they are ok with you investing and you buy a profitable investment them i woyld say refi ASAP pay them back early and with a solid return on their money. you will have a backer for life if you make a smart choice and reward their generosity, plus you have a huge leg up that a lot of folks would kill for.
Rental Property Investor · Scottsdale, AZ · Member since 2017 · 115 posts · 136 votes
9y
@Francesco Barbati , do you think you could find a SFH that is at a good price, in a good area that needs a little TLC? You could "house hack" where you live in the house while fixing it up and then sell after 2 years at a profit. You won't be taxed on the gains from the sale and can leverage those gains to buy other investments or do the 2 year fix/flip again, etc.
In response to the 10% interest rate, not sure that's correct, seems to be 0% interest and considering the time value of money, seems like it's actually negative interest. This person lending you the $120K seems to be losing money here. Anyways, the answer to what you "should" do really depends on a lot of circumstances, those with the most weight relating to what you and your wife personally/financially want. If she's on board with you, it might be a good idea to get a 2-4 unit place, live in one, rent out the other 3. If you find a great deal on a SFR, may go for that, however note that we are seemingly at the height of the market, or at least not sure it has that much run left in it, so be somewhat wary.
I tried to pitch it to my wife this morning and make her understand what I am doing and trying to achieve for our family, but she wasn't very happy.
Real Estate Professional · Boca Raton, FL · Member since 2016 · 116 posts · 17 votes
9y
Yes, I talked to the lender this morning and sign a provisory note, and he said he doesn't care about interest and he is ok with that.
I meant that my personal savings are $11,000. Saved up in the last 2 years. At least my wife is on board about being frugal. Also we are minimalist and this definitely help saving.
Rental Property Investor · Pasadena, CA · Member since 2016 · 164 posts · 149 votes
9y
Not sure exactly what you talked about and maybe you already did my suggestions, but I wouldn't talk figures or numbers so much with her, but rather the dream, lifestyle that making a smart move would make. With almost all great achievements in life, they take some immediate/momentary sacrifice to get to the end of the tunnel. Relate or analogize it to something she can relate to. Such as going to school or carrying a baby for 9 months, there is sometimes some pain, tiredness, fear upfront, but when you take that risk, you reap the rewards.
@Francesco Barbati , do you think you could find a SFH that is at a good price, in a good area that needs a little TLC? You could "house hack" where you live in the house while fixing it up and then sell after 2 years at a profit. You won't be taxed on the gains from the sale and can leverage those gains to buy other investments or do the 2 year fix/flip again, etc.
I wish I could. SFH within 20 miles radios from my job start at $240k. We went to see a bank owned property to rehab, decent price, even if a bit farther numbers could work. As I though it was a ghetto and realtor avoided the questions on the topic "safety of the area"...
Yes, I talked to the lender this morning and sign a provisory note, and he said he doesn't care about interest and he is ok with that.
I meant that my personal savings are $11,000. Saved up in the last 2 years. At least my wife is on board about being frugal. Also we are minimalist and this definitely help saving.
Aah, I didn't realize you meant $11k savings. So, ZERO percent interest! Good. It can't hurt to ask Lenders how much you could borrow on top of your $120k financed funds and $11k of ACTUAL cash, right? Maybe start by asking the Bank who already holds that $11k? Good work. Cheers...
Yes, I talked to the lender this morning and sign a provisory note, and he said he doesn't care about interest and he is ok with that.
I meant that my personal savings are $11,000. Saved up in the last 2 years. At least my wife is on board about being frugal. Also we are minimalist and this definitely help saving.
Aah, I didn't realize you meant $11k savings. So, ZERO percent interest! Good. It can't hurt to ask Lenders how much you could borrow on top of your $120k financed funds and $11k of ACTUAL cash, right? Maybe start by asking the Bank who already holds that $11k? Good work. Cheers...
Rental Property Investor · Boca Raton, FL · Member since 2014 · 1k+ posts · 713 votes
9y
@Francesco Barbati Since you asked what I would do... I would attempt the house hack. Now, you are going to be at a lower price point than a duplex in Palm Beach County, however, one thing you can find is a single family home with an "in-law suite" or a "guest house" as they are listed in the MLS. This would allow you to live in the guest house, while renting out the main house. These types of properties are all over PBC, especially in West Palm Beach and Lake Worth.
Now, there are a few things to mention. First, you'd want to make sure that the separate living space is permitted. That is a head ache you don't want down the road, and an unpermitted building would make the resale value much less. Next, this is one property, not a duplex. This means that the utilities are most likely NOT split, so you will need to take that into account when determining rents. This may be more difficult to find, but this is just another option for you. It is the opportunity to house hack, without paying the premium for a multifamily, or the taxes on a multifamily home.
Real Estate Investor · Desoto, TX · Member since 2013 · 560 posts · 528 votes
9y
Something seems a little off about this. You borrowed $120K for a primary. Are you going to tell your family member/lender that you are going to use the money for some sort of "investment" purchase instead? If you are going to do something in real estate that increases the risk factor to the family member I think it is a little misleading not to tell them..just my two cents. Especially if you are new to real estate yourself. What you are saying is I have limited income history (which is a concern), I couldn't qualify to buy my own house conventionally, I had to borrow money from family, I don't have experience in real estate, yet I want to be risky on my family member's dime. If buying the primary was that important to me to ask for $120K from family, I would honor that unless I tell them my plan and they sign off on the risk.
Not sure exactly what you talked about and maybe you already did my suggestions, but I wouldn't talk figures or numbers so much with her, but rather the dream, lifestyle that making a smart move would make. With almost all great achievements in life, they take some immediate/momentary sacrifice to get to the end of the tunnel. Relate or analogize it to something she can relate to. Such as going to school or carrying a baby for 9 months, there is sometimes some pain, tiredness, fear upfront, but when you take that risk, you reap the rewards.
You were right, talking numbers didn't work out very well the first time. But after talking for a couple of days, I got her on the same boat.
@Francesco Barbati Since you asked what I would do... I would attempt the house hack. Now, you are going to be at a lower price point than a duplex in Palm Beach County, however, one thing you can find is a single family home with an "in-law suite" or a "guest house" as they are listed in the MLS. This would allow you to live in the guest house, while renting out the main house. These types of properties are all over PBC, especially in West Palm Beach and Lake Worth.
Now, there are a few things to mention. First, you'd want to make sure that the separate living space is permitted. That is a head ache you don't want down the road, and an unpermitted building would make the resale value much less. Next, this is one property, not a duplex. This means that the utilities are most likely NOT split, so you will need to take that into account when determining rents. This may be more difficult to find, but this is just another option for you. It is the opportunity to house hack, without paying the premium for a multifamily, or the taxes on a multifamily home.
Hope this helps!
It absolutely helps!
You are right! I cannot afford a duplex in this area, but I could definitely find a SFH with an "in-law suite" at that price point, especially if it needs some TLC. How did not think about that!!
Something seems a little off about this. You borrowed $120K for a primary. Are you going to tell your family member/lender that you are going to use the money for some sort of "investment" purchase instead? If you are going to do something in real estate that increases the risk factor to the family member I think it is a little misleading not to tell them..just my two cents. Especially if you are new to real estate yourself. What you are saying is I have limited income history (which is a concern), I couldn't qualify to buy my own house conventionally, I had to borrow money from family, I don't have experience in real estate, yet I want to be risky on my family member's dime. If buying the primary was that important to me to ask for $120K from family, I would honor that unless I tell them my plan and they sign off on the risk.
True. I could seems a little off, and I agree with you (and basically everyone before you) that I would make my family aware of my plans. Actually I did today, and I also got my wife on board so we are running numbers and working on a plan.