Using Family as Private Lenders for Owner Occupied Airbnb Duplex
Hello!
This is my first post to bigger pockets but I have been listening to the podcast for a year or two now and I am about to close on my first duplex in 8 days!
Background
Buying a 361,000 duplex that is 6 beds 3 baths. The first floor unit (2bd 1 ba) is where my wife and I are planning on living and the 2nd and 3rd floor (4bd 2ba) will be rented out on airbnb. Using AirDNA to price out average daily rate and occupancy (232 a night at 66% occupancy) will give a gross revenue of $55,889 a year just for the 4bd unit.
Recently our loan officer said that we could do a 3.5% down FHA loan ($12,635 down payment) using my w-2 job and 1099 job, but since my wife and I own the business together we messed up and did taxes for the business under her name in 2021 and taxes under my name in 2022 so they cant count any of the income that the business made. That means that I can no longer do FHA because my debt to income ratio is too high so we have to switch to a 15% down Conventional Loan ($54,150 down payment) which is substantially more than we were thinking we would have to pay.
So that brings me to....
Making My Family Investors
My Grandma and parents have expressed interest in investing in real-estate with me and told me that if I ever needed an investor they would be interested. Only problem is that I have never brought on investors and dont really know how to structure an agreement/contract.
Here is what I was thinking of so far:
50/50 split of profits for those who invest just money and the person who found the deal, perform renovations, and run and operate the bnb.
So if an investor puts 50K in and I found the deal, did the renovation and operated the airbnb we would split the profits 50/50.
If an investor put up 50k and I put up 50k in renovations and still renovated and operated the airbnb the investor would get 25% and I would get 75%
Does that sound fair/right? Does anyone have any examples of a contract or structure that might work better?
Like I said Im a newbie so please let me know if I should be considering something else or if you have any advice!
Thanks!
@Adam Baur- can you clarify if the family option sould be for the entire amount you will need or for the larger down payment amount you would need to do the 85% ltv loan you have been pre approved for ? .... if you borrower money from a relative - just have a the terms for the loan set and repay them monthly as if you are paying the bank back on a loan ..simpel as that
Hello David! Thanks for the reply. I actually spoke with my family a few moments ago and they said they can do a personal 50k loan at a standard interest rate (still in talks about what that interest rate would be) but like you said I would just pay it off monthly like I would with a bank! If you, or anyone else reading this, has a personal loan template document that they would recommend please let me know! I want to make sure everything is in writing and there is no ambiguity so problems wont arise.
Hi @Adam Baur
Congrats on this deal!
I'd agree with Dave and just set a flat interest rate for their private loan. I'm not sure what the 'standard interest rate' is that they are thinking but you could do something like 6-8% annual interest. That would be much higher than any CDs or bank accounts that they currently have the money in. Splitting the profits doesn't seem fair in my opinion since you will be doing all the work!