Can I Buy/Sell A House To/From Myself?

5 Replies

I have a private lender who is willing to "lend" me X amount of money to build my real estate portfolio, at a cost to me of 20% of course. He would deposit a check for the purchase price AND the rehab costs up front into our LLC. We were throwing some ideas around and came up with this scenario:

Purchase price: $50,000 + $20,000 in rehab costs = $70,000 Total Investment

$70,000 Investment + 20% Interest = $84,000 Owed back to private lender

Now, would we be able to pull out a traditional home loan for this property, use that money to re-imburse the private lender and then make regular payments to the bank?

The reason we are even considering this is that my investor wants little/nothing to do with the real estate side of this and does not want his capital tied up long term in rental properties. So using the above scenario we could pay him back within a few months and still keep/add an updated income property to our inventory.

I'm open to questions/comments/ideas/dumbest thing I've ever heard......etc

That is the model we currently follow, for the most part:

1.  Buy distressed properties using a hard-money/private loan at higher interest rate

2. Rehab property

3.  Refinance out into a conventional 30-year loan at lower rates and pay off hard-money loan.  (As quickly as possible)

Of course, you cannot get traditional Fannie Mae financing in an you may have to look at other options for the refinance.

The 20% rate seems high to me, but you did not mention whether there are any other fees or not.  For example, we often pay origination fees - typically 3% - which are a fixed cost up front.  After that interest is paid monthly.  I would expect a private lender to be lower than my local hard money guys.

I assume the 20% is per annum, so you won't necessarily pay $14k to the lender, rather approximately $1100 per month, for each month you are in the deal.  So if you refi out and pay back after 2 months, you have only paid approx $2200 total interest. At least I hope that is the case!



Thanks for the reply! Let me ask you this, would we be better off just having him cut us a personal check and depositing that into our personal checking account (tax issues??) We in turn do what we need to do to the house and then try to secure refinancing afterwards. 

This scenario would only be the case for properties we would like to keep as rentals. 

Again, thanks for your time!

@Charles May

Andy's comments above are spot on. 

Yes, this is also a scenario I've also done. As mentioned, most banks will not lend to an LLC, so consider not using one at all as it will open more financing avenues for you.

The key thing is to talk to banks now to see what it might appraise at after the rehab work, get pre-approved if possible, and also make sure the refinance amount will pay off the private lender.  For example, if it's an investment property, most banks will lend 70-75%.  So if you need $84k after a year to pay off your lender. the property needs to appraise at $120k if they're going to lend 70%.  Of course, make sure you factor in closing costs, budget overage, and reserves just in case.

Good luck!

- Tom 


Thanks for the comment! I think I have what I need now! Better to make the mistakes in

@Charles May - the best thing to do is talk to whatever bank or broker might do your refi.  Depending on the type of financing, the refi lenders can get pretty finicky.  Some are easy, some are headaches.  On some refis I have had to demonstrate where the funds came from that I used to close on the purchased property - they wanted to see that it was my money.  With this in mind I can see where the depositing a personal check might be an issue, unless it is more than 2 or 3 months before the refi (our lenders usually only look at 2 months' worth of statements).  Of course proper documentation with the private lender may remedy that sort of thing.  Just guessing now.

Good luck!


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