Private money from relative - Help needed

5 Replies

Like any good investor, I feel like I am working on it all the time.  I love it, so it's not quite like work, but ideas are always turning in my head.  So over the holiday weekend I was at my parents and we were talking about what I have going on in the fix and flip area.  I told them there were a couple of houses that I wanted to make offers on but didn't have the money available.  My father perked up and wanted to know more.  So we got to talking about the properties and what I might need and if I would be overwhelmed taking on more projects at once.  He seems very interested in what I'm doing and wants to help me out.  I just need to put a few things together for him.  He asked if I wanted a lump sum or more of a line of credit.  I am leaning toward the line of credit.

I'm looking for advice or a template for an agreement on a line of credit for private money.

I know my dad will give me a little bit of break on interest, but I want to be fair with him and not take advantage.  What is private money costing these days? 

He wants to see some sort of business plan outlining my goals and how the money would be used.  I can handle that.

Thanks in advance for any help you guys can provide. 

I think 8% - 12% is fair on both ends.  My partner and I have a few different private money loans from friends and family and they are all between 8%-12%.  We typically have our private lenders loan money directly to the business.  This has pros and cons.  Obviously the money is there fast and you can make a move without their approval.  On the other hand, the benefit of a credit line is that you don't pay interest when you aren't using it.

We also personally guarantee our money.  We have enough projects going on that if we did lose money on one project (knock on wood) we would be able to make that up with the profits on our other projects.

Hope this helps.

I borrow money at 10% secured by the property, and usually pay back within 1-2 years. 

There are a lot of different ways of looking at 'private money'. There are people out to make a 'good return' (what I would be doing if *I* were the lender) who are looking for that 8-12% that John mentioned above.

My only experience so far is in the 'hybrid' area.... I am in construction for my 'day job' and bought a 're-flip' from an Professional Flipper that I do work for since he had to many at one time to handle himself. He bought it for 85K and sold to me for 95K and financed it for 6 months at 6% interest. He borrows his funds at 3% from his relatives that are happy to make more than .5% in CDs. For my fix up funds, instead of draining my cash reserves, I approached a family friend that I new had quite a bit of money in CDs at under 1% return. I suggested 6%for 6 months for him too to see what he thought. He came back the next day and said he'll only take 3%, and I can have it for up to 3 years too! He saw it as 'locking in a good return' for him in an almost zero risk venture. I shared with him that I what my IRA and house equity were (300K+) in case he had to foreclose on me, so he was comfortable.

Since then I have been working on finding private lenders to do more deals within my SDIRA for buy and hold rentals. I have a few (including the one mentioned above) people interested in anywhere from 3 year up to 15 year loans at 3% - 8% rates. Most of them have a portion of their assets in CDs or other low yield funds and like the idea of making a better return that is still safe.

Good Luck, Dan Dietz

I've done Private Money from family and Private Money from Real Estate Investors - family I've always done at 5.5% - they are there to help and it beats .001% from a Savings Account.  Win win for both sides.  Private Money from a Real Estate Investor, usually through a Hard Money company - I've paid from 8-12%.  I've done both scenarios on rentals and flip properties.  I've used family lent money at 5.5% from several family members on about 15 deals.  Private Money through a company at 8-12% on about 65 deals.  Private through a company has always been a collateralized loan to the subject property.  Family loans have always been done as non-collateralized loans with a personal guarantee, so that no matter what happens to the properties, I will pay them back.

Everyone does it differently - but this is how I've done it successfully for over 80 houses fix & hold and flipped properties.

Best of luck! Ken

Hey guys, I'm looking for a little more clarity on how this gets drawn up. My parents are willing to loan me 20k for some BRRRR properties I'm looking into. Their money will be used for part of the rehab. They are comfortable with a personal guarantee and 10% interest rate.

What kind of documentation is required so that they have a record of interest received on the loan for taxes, etc. 

I'm just breaking into real estate so everything is new to me. And I'm trying to cover all my bases before I go and take 20k from my parents. 

I'm closing on my first buy and hold duplex in 2 weeks and I'm beginning to go down the BRRRR path to try to stretch remaining resources.

Thanks for any help you can give me,


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