Investor, Entrepreneur · Greenville, WI · Member since 2015 · 138 posts · 27 votes
I'm not sure if this qualifies as a "HML" or something else, but here's my situation.
I have several properties that I'm interested in, I'd like to buy them all but I'm running short on cash.
All of the properties cash flow nicely. I'd be looking at borrowing between 50-100k from some friends and family. I do all of the property management, so all they need to know is what they are getting in return for their money.
Is 10% reasonable? As in, they give me 50k and in 1 year I return 55k? Or should it be lower or higher?
Also, how do I do this so they have collateral, but I don't have to refinance to take them off my title once I repay the loan?
From the perspective of a family member giving you money, here is what I would look for:
Partnership (Me: Money, You: Work). I would want 60% - 70% ownership depending on your track record. If you have a proven track record, I am happy to go down to 60% because I know you will make up more in value.
Loan, Annual Return: 10 - 18%, once again based on track record. I can pull in roughly 5% annually on preferred share funds with low risk and virtually no work on my part. 10% is my low end. This (investing with my family member) is risky. I would also want first lien on the property, which is very standard for private loans.
My private lender rates paid are 6-7% in this interest rate environment. They're not family, but I have multi-year relationships with them. They always get a first mortgage, as well, but they are lending most of the money.
Need to collateralize your lenders in some way, but not necessarily give them ownership or equity depending on how much they lend or how much work they do. It's all negotiable! Whatever you do - never, ever not pay as agreed @James W.! I would live on ramen noodles before even considering not paying my lenders.