Beginner's Question for Investing with Private Money
Hello BP community! This is my first post, so set your expectations low! Here goes ...
Rather than save my way to down payments using my W-2 income, it is easy to imagine how using private loans could accelerate my REI goals. Perhaps this is a bit naive, but are there any legal or financing concerns with using a private loan from friends/family for the down payment of an investment property (SEC regulations, underwriting difficulties, etc.)?
- Hypothetically, if I were to borrow $100,000 from my folks and try to buy a $100,000 house entirely with cash, will I run into any issues?
- How about if I borrowed $20,000 at 5% interest over 30 years - can I use that private loan to fund the down payment for this $100,000 house?
The thought process here is that I may be able to make a 15% (for example) return on my own cash while accepting the risks associated with real estate investing, whereas a private party may not want the risks or fluctuations in income and be perfectly happy with a 5% return on their loan. They could give me a loan with a guaranteed return (i.e. 5%), and I could use the loan to go after higher returns (i.e. 15%). They get their guaranteed income, and I get cash flow with no/low money down. Win-Win!
Can I do this?! If so, is it as simple as, "Hey Dad, can I borrow $20,000?"