Borrow from family member or FHA Loan?

2 Replies

I am currently in the process of looking for my first multi-unit building to purchase and rent out. My brother has offered to loan me the money to purchase a building with cash and I could just pay him back the exact amount instead of having to wait 4-6 months to close and pay interest on a mortgage. This is great except for the fact that if I take out an FHA loan, he could have his money to invest himself and take care of his family while I invest the money I am loaned from the bank and let my tenants pay the mortgage. I'm not sure if i'm making sense at all so let me know if what i'm asking make sense or not. Which is the wiser choice when it comes to investing? Borrowing from a family member or taking out an FHA loan?

I don't think there's a right or wrong answer here. I've had clients in your situation borrow money from family to do their deals, but it almost always involves either paying them interest, or a portion of the profits (typically on flips). The other thing to consider is that if you've never done real estate investing before, and this is your first purchase, then be aware that there's a chance you might make a mistake that could cost some money. If this were to happen with your brother's money, things could get ugly since you've now mixed family with business. 

No real right answer here, it all depends on what level of risk you and your brother are willing to take, and what kind of relationship you guys have.

@Samantha P.  

In my opinion, its always best to keep business afairs seperate from family matters. In the event that the deal does not goes as planned and you take a potential loss , that could create a very large rift within your family that will be difficult to repair. I would suggest the bank option... Furthemore, if your working with a bank that takes 4-6 months to complete a loan, you're defintely working with a subpar bank/banker....

Hope this helps.

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