Private Lending from Family

[Dan M.]

Hey All,

Newer investor here from Phoenixville, PA (Philadelphia Suburb.) My partner and I have created an LLC and recently purchased 3 SFH (buy and hold.) We are hungry to buy more and both of us may have the option to borrow money from family. The potential lender(s) do not have experience with this process and it's newer to us as well. Does anyone out there have experience with this? Should a lawyer write up the terms? Do we put the lender(s) name on the lien? What can the lender expect when tax time comes around? We aren't looking for a free loan and want the deal to be beneficial for both parties. The loan would most likely be between 50-100k Any advice, guidance, or direction would be greatly appreciated!

[Jessica Zolotorofe]

Good morning! Definitely have a lawyer draft a contract and a mortgage for the lenders. Are you looking to pay interest on the loans? Do they get paid back when you sell or on some date certain? Are you looking to borrow from multiple people for one project or an investor for each new deal? If the former, the security becomes a little more complicated because of the priority of the mortgages. If there is a lot of equity still in the property, probably not as big of a deal, but if it starts out closer before you renovate, you want need to offer higher interest rates for lower priority mortgages so there's a benefit to the added risk. Doesn't have to be major if it's family and friends, but you still want to be as formal as possible when it comes to these things so you don't end up losing friends later over something silly that could've been drafted into a contract in advance! Happy to chat further if you want to send me a PM or email. Best of luck!