Uncle wants to borrow from me, what are my risks??

Question

Heres a quick run-down of the situation.

My uncle wants to borrow 65k from me (for a flip) from a line of credit I have.  I don't love the idea but I will be away with the military for a couple months so I won't be doing anything with the money anyway.  I explained to him that I would need it back after 3 months and he complied.  I will be paying about 4.5% once taken out.  What are my risks? and how much should I require from him to make it worth my while/ risks?

Jon Holdman · Answer

Loans like this do not always work out.  Three months is a very short timeline for a fix and flip.  What happens if he cannot repay it in three months?  What if he cannot repay it at all?  I've made a loan where this is EXACTLY what happened.   I took back the property deed-in-lieu of foreclosure, finished the rehab and sold it.  Total time 15 months.  Are you prepared to deal with that?  Are you prepared to deal with family gatherings being tense from now on?  Is your uncle an experience fix and flipper?

Ryan Blake · Answer

If you file a deed of trust, make sure there is a builder's risk policy in place, and keep the LTV below 80% I would say your risks aren't too high. The issue would be if/when you need to foreclose that if you are out of the country you are going to be dealing with other people to take care of things which will cost money. You would need to sell the house quick and cheap which will be your biggest risk. I would suggest 9% (double what you are paying) and then your choice if you want to charge a point up front or not. I would also suggest you go to the property or send in a third party to ensure that it is a good flip (i.e. the numbers work).