Grandma will loan me anything at 5% rate

Member since 2025 · 17 posts · 16 votes

1y

Hey Ethan. Lots of numbers on this one but at a glance, a 5% interest loan is OK but not the best to couple with a 2 year balloon. Ideally IMO you'd want a long enough balloon to refinance the property to pay out her cut. 2 years may not be worth it compared to at a minimum 5 year balloon. But I'll let others weigh in on that since I'm doing this all without a calculator and staying up way past my bed time .

4 Reply

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

1y

I'd spend a bit of time researching. Winter is generally the best time to buy and if you want to rent a room, you will need to find at least a 2 bed place and one that is suitable for renting (ie the right configuration for roommates).

Why not save up and find out if her or your parents would be willing to co-sign a mortgage for you if you find a place before that 2 years is up?

2 Reply

Patrick Roberts

Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes

1y

For traditional loan options, you generally cannot borrower any part of the cash to close (downpayment and closing costs). All of this money will be sourced unless seasoned, so the only way around this would be to A) get a personal, unsecured loan from your grandma several months in advance, and B) lie about this fact on your application (you will be asked about any undisclosed debts). Mortgage fraud is a terrible idea, so dont do this.

Secondly, if your grandma intends to secure her loan against the property with a mortgage/DOT, then this will be a consumer loan since you will occupy it. Dodd-Frank/consumer finance laws at the state and federal level will apply, and since your grandma is an outside party to this transaction, she will most likely need to be licensed as a mortgage lender to lend in the way you described.

Most importantly, though, you need to weigh the potential negative outcomes of this situation. Is your grandma independently wealthy where she can absorb the loss of this money without any major impact, or is this her life savings that you'll be risking? In other words, if this blows up and you lose her money, what would the outcome be? If she cant afford the loss, then this is a horrible idea and should be abandoned. It's one thing to gamble with your own assets, but entirely another to gamble with someone else's money just because they trust you when it could have life-altering consequences for them.

If she's going to lend to you, I would recommend that she be in first position only with a healthy margin of safety (equity cushion) and then seller-finance whatever property to you. This means you'll have to go out and find a crazy good deal for her to buy on your behalf and will likely need to invest your own cash as the downpayment, although I dont know how far $20k will really go these days.

Another option would be for her to buy the property herself with a mortgage and then rent to you with a purchase option for when you can eventually qualify for your own loan. This will also increase her risk, though, as half of the reason that lenders require a downpayment is that this equity soaks up the first losses before the lender takes a hit.

You're on the right track, but the reality is that you might need to wait longer until you're able to qualify. Both Conventional and FHA programs exist to help people in your shoes get started, and the requirements really arent steep - 2 years of job history to prove income stability, 3-3.5% down, and good credit. There are also nonQM programs that allow you to use the type of work history you currently have, but they typically require 10-20% down at a minimum. Since you have a some cash and know how to hustle, some of the other pathways into REI may be a better starting point (like wholesaling).

3 Reply

Ethan Tomlinson
OP
Member since 2021 · 11 posts · 15 votes
1y
Quote from @Patrick Roberts:

For traditional loan options, you generally cannot borrower any part of the cash to close (downpayment and closing costs). All of this money will be sourced unless seasoned, so the only way around this would be to A) get a personal, unsecured loan from your grandma several months in advance, and B) lie about this fact on your application (you will be asked about any undisclosed debts). Mortgage fraud is a terrible idea, so dont do this.
Secondly, if your grandma intends to secure her loan against the property with a mortgage/DOT, then this will be a consumer loan since you will occupy it. Dodd-Frank/consumer finance laws at the state and federal level will apply, and since your grandma is an outside party to this transaction, she will most likely need to be licensed as a mortgage lender to lend in the way you described.
Most importantly, though, you need to weigh the potential negative outcomes of this situation. Is your grandma independently wealthy where she can absorb the loss of this money without any major impact, or is this her life savings that you'll be risking? In other words, if this blows up and you lose her money, what would the outcome be? If she cant afford the loss, then this is a horrible idea and should be abandoned. It's one thing to gamble with your own assets, but entirely another to gamble with someone else's money just because they trust you when it could have life-altering consequences for them.
If she's going to lend to you, I would recommend that she be in first position only with a healthy margin of safety (equity cushion) and then seller-finance whatever property to you. This means you'll have to go out and find a crazy good deal for her to buy on your behalf and will likely need to invest your own cash as the downpayment, although I dont know how far $20k will really go these days.
Another option would be for her to buy the property herself with a mortgage and then rent to you with a purchase option for when you can eventually qualify for your own loan. This will also increase her risk, though, as half of the reason that lenders require a downpayment is that this equity soaks up the first losses before the lender takes a hit.
You're on the right track, but the reality is that you might need to wait longer until you're able to qualify. Both Conventional and FHA programs exist to help people in your shoes get started, and the requirements really arent steep - 2 years of job history to prove income stability, 3-3.5% down, and good credit. There are also nonQM programs that allow you to use the type of work history you currently have, but they typically require 10-20% down at a minimum. Since you have a some cash and know how to hustle, some of the other pathways into REI may be a better starting point (like wholesaling).

Thank you, this reply was quite insightful and very informative for me. I appreciate your comment. So much of this feels so complex and I just want to seek understanding and make sure I do it the right way. I am always open to feedback!
0 Reply

Bruce WoodruffPro Member

Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes

1y

My first thoughts were along the lines of what @Patrick Roberts said.... 1) Can your Grandma withstand the loss of all of her money? 2) Don't lie on the Loan App about where you got the money for your down...

Never assume that the deals will work as planned, and that you will make money. We've all gone home at the end of a 'deal-gone-wrong', licking our wounds....well. at least I have.

Maybe think about partnering with her, create an official K1 partnership, or start an LLC or S Corporation with you both as officers....? Just my thoughts....at least you're ready to get started on your RE journey.

Good Luck !

4 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

1y

Quote from @Matt Menard:

Hi Ethan,

If you are interested in investing, I have a great team who is currently raising money for a 452 door complex. You do not want to be a landlord and need to look bigger. This would be a great first step to getting you there. Reach out if you have any questions.

Matt be very cautious of post like this.. you dont want to start out in some massive syndication with people hitting you up on the internet.. Just sayin..

I think you can have your grandmother lend you down payment for a house hack FHA there in ID go with that to start.. get some experience handling one tenant and a place to live by far your best way to start you have decades to work at this.

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15 Reply

Matt Menard

Member since 2025 · 8 posts · 2 votes

1y

@Jay Hinrichs Hi! What I am presenting is a deal much better than a single family home. You do not need decades of experience in being a landlord. In fact, it is a poor strategy. Start out big enough to have a management company be the landlord.

0 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

1y

Quote from @Matt Menard:

@Jay Hinrichs Hi! What I am presenting is a deal much better than a single family home. You do not need decades of experience in being a landlord. In fact, it is a poor strategy. Start out big enough to have a management company be the landlord.

your new to BP your not allowed to self promote like this one the open forums.. And of course we all have our opinions a 22 yo kid starting out should never go into a big syndication with borrowed money its foolish to the extreme and very poor advice. AS well as unless this is an offering that allows non accredited investors this young man is not accredited.. based on his posts.. So again very poor post on your part.

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8 Reply

Calvin Thomas

Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes

1y

Quote from @Ethan Tomlinson:

I just found myself in a strange situation and maybe a wonderful opportunity. I am 22 and I have zero experience in owning rental property. I have been saving up money to finally make my first move into real estate, but the thing holding me back at this point is 2 years of w-2 in order to get an FHA loan. I have 20k saved on my own over the course of my life, mostly through random short jobs and never spending money.

Tonight I went to a local real estate meetup and met cool people, talked about a few different things, but when I got home I told my Grandma about how I want to be a landlord, and do a House hack. I told her about how since most of my income until the past few months has been saved through my life with no w-2, I can't start my dreams for another couple years through FHA means. Suddenly she didn't hesitate to say she would loan me 100k, or anything for that matter. I asked what rate and she just threw out 5%, with a balloon on the end for the full loan, but really she said "whatever would make it a great deal for you" (I don't want to just take advantage either, but a good deal is a good deal. She said she doesn't care to make lots of money anyway and its just sitting there.)

I thought It would be sweet to do a BRRRR on a 100k property and pay the 5% a month plus the balloon back in full in that two year window, but I was like there's no way I can even find a 1 bed 1 bath HOUSE for 100k in my area, and looking on Zillow/realtor I was right. They are only mobile homes on rented land, and I don't think I want to get into all of that mess, especially with a BRRRR and as my first deal. It scares me.

Anyways, my main questions are based upon a hypothetical. I believe I can find some pretty nice multifamily units in my area for 350-500k. Is it possible for me to do something like take a 20-30k loan (at 5% interest) from my grandma combined with my own 20k in savings (40-50k total) to use for an FHA down payment, closing costs, and needed repairs plus have cash in reserves? How would a bank (or wherever I get an FHA loan from) react to this? Remember I still don't have 2 years of w-2 but does having her cover the costs make a difference?

For extra details: Her loan would probably end up being a 5% interest rate for 2 or 3 years and a 20-30k balloon at the end of the 2 or 3 years. She really is letting me set the terms if I do this, and if I take a 30k or even 20k loan from her it could potentially only add 100-180$ to my monthly costs each month for running the property. I could easily work my w-2 jobs over a couple years and save that 20-30k to pay the balloon back. My savings rate is about $2200-2500 a month, and I also think with a solid deal on something from a tri to a five plex, maybe I could get decent cashflow to help me even more prepare for that balloon, heck even pay the balloon a year early if the terms allowed it in our contract.

Please respond with any additional questions if you need them to help answer mine. I hope this made sense to read. My apologies for any confusion.

I wouldn't borrow from Granny. If something goes wrong, and it will as you do not have any experience yet, it can sour the relationship.

11 Reply

Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

1y

@Ethan Tomlinson

just save up / wait until you can house hack yourself - no need to take on all this complexity / mix business with family

if you can house hack at 23-24, you're still way, way ahead - median age of first time home buyers in the US is in upper 30s at this point

while you don't have that mortgage, save up as much as you can

then house hack 2-3 times in a row - you now have a portfolio

good luck

5 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

1y

Quote from @Matt Menard:

@Jay Hinrichs Hi! What I am presenting is a deal much better than a single family home. You do not need decades of experience in being a landlord. In fact, it is a poor strategy. Start out big enough to have a management company be the landlord.

So, jump in the deep end of a pool you know is 10ft deep, but you have never been in this pool, so you don't know if there is even water in it. To cover yourself, you are going to rely on the lifeguard to save your a$$ if anything bad happens.

3 Reply

Todd Dexheimer

Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes

1y

Quote from @Matt Menard:

@Jay Hinrichs Hi! What I am presenting is a deal much better than a single family home. You do not need decades of experience in being a landlord. In fact, it is a poor strategy. Start out big enough to have a management company be the landlord.

@Matt Menard what kind of experience do you have operating 400+ unit apartment buildings? You're soliciting on BP to the Ethan saying that your deal is better than him being a landlord, without context and a stated track record. This is Grandmas money at play here and she wants to help her grandson get started.

I've done SF's, duplexes, house hacks, BRRRR, flips, wholesales, etc. These are all great paths to get started and learn the ropes. Ethan passively investing in your syndication, one of my syndications or anyone else's syndication doesn't teach him much and would be poor use of his resources. If his grandma wants to invest in your syndication, then solicit her directly.

6 Reply

Rob Hakes

Murray, UT · Member since 2016 · 162 posts · 166 votes

1y

I never intend to default..........

But if I do, It would not be to by grandmother.

There is no reason to throw that into a relationship.

3 Reply

David Hedges

Investor · Crown Point, IN · Member since 2014 · 177 posts · 84 votes

1y

when taking a loan from family, or really anyone, make sure you put everything in writing and both sign off on it. Even if you don't think you need it, you want to make sure there is no misunderstanding about how the money will be used, what the terms of the loan are, and what will happen if you can't meet the terms of the loan.

I do this every time, primarily because of a misunderstanding with my mom about the length of a loan. In the end it all worked out for me, but I had verbally told her I'd pay her off in 3-5 years, and she had just remembered 3. Around the 3 year mark she started asking a lot of questions and pressuring me to pay her off. Fortunately, at that point I didn't owe her much and was able to pay her off, but if it had been a larger amount it may have become a bigger issue for me.

Since then, I have always gotten everything in writing.

2 Reply

James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

1y

@Ethan Tomlinson I will start with the problem and end with the solution.

The Problem:

The odd's of you failing, messing up, which will cost $ to fix, is astronomical to the point it's almost guaranteed.

Now couple that with fact you yourself have very little $, no experience, little to nothing to fall back on of self. And risking souring what I assume is an amazing relationship with family.

The Solution:

Embrace how green you are, and do it backwards.

Have it where your going to put in all the work, all the effort, and the doing, and your Grandmother will be the one who purchases the property.

From there, you can "buy-it" from her on a kind of lease option. Keep it informal, just the 2 of you writing it down that in 2yrs time when you do everything you promised to do that you'll buy it from her for $____ .

And for the now, your going to be the one doing everything, with the watchful eye and advisory of your Grandmother who is in 100% control as sole owner to protect for any just-in-case.

This will save all the headache on financing approvals and what not.

And it reserves your $20k, for operational expenses. So you have the $ to do whatever, improvements or just have reserves when it's vacant to cover costs etc..

It makes you accountable and gives an accountability partner which trust me you need that.

And try to keep it SIMPLE.

No DONT get jazzy. DONT try to maximize it. DONT try for a multi.

Go for a SIMPLE solid base hit. Get a simple "bread & butter" single family home. One that will rent easily, sell easily, is simple bland vanilla SIMPLE.

Complexity and scale comes LATER.

If you want to be an Investor and not a Gambler, start small, simple, base hits.

Gamblers swing for the fences. Investors go for consistent base hits.

You do this right, it will lead into a next opportunity, and a next, and a next.

Take it slow, baby steps, DONT try to maximize it right out the gate, be conservative. And for Lords sake IGNORE anyone/everyone who encourages Gambling and going bonkers with things. Simple Simple SIMPLE.... I can't emphasis that enough.

Boring is your friend. Exciting is the enemy.

8 Reply

Tyler Palmer
Investor · Cleveland, OH · Member since 2025 · 23 posts · 34 votes
1y
@James Hamling @Ethan Tomlinson I agree with James on this one Ethan. Great advice.
1 Reply

James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

1y

Quote from @Matt Menard:

@Jay Hinrichs Hi! What I am presenting is a deal much better than a single family home. You do not need decades of experience in being a landlord. In fact, it is a poor strategy. Start out big enough to have a management company be the landlord.

I am shocked to see someone self-admitting there so brand new to REI that there working on there 1st deal themself but at same time pandering for people to jump in as LP's on there syndication......

Is this real? It's gotta be a joke, right????

4 Reply

Andrew SyriosPro Member

Moderator

Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes

1y

FHA needs 2 years but local banks could consider less. Do you have a job right now? I got a 95% LTV loan from my bank that was non-FHA for my home. That might be the way to go on this. If you could get a house for $300,000, that's only $15,000 down (plus a few thousand in closing costs and a few thousand, at least, most in inevitable repairs).

One note though, banks and FHA won't let you get a second loan on. You will have to record it without telling them after the fact (not allowed by their loan docs but this is not uncommon) or borrow it unsecured, which is sounds like your grandmother would be willing to do.

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2 Reply

Ken M.

Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes

1y

Quote from @Ethan Tomlinson:

I just found myself in a strange situation and maybe a wonderful opportunity. I am 22 and I have zero experience in owning rental property. I have been saving up money to finally make my first move into real estate, but the thing holding me back at this point is 2 years of w-2 in order to get an FHA loan. I have 20k saved on my own over the course of my life, mostly through random short jobs and never spending money.

Tonight I went to a local real estate meetup and met cool people, talked about a few different things, but when I got home I told my Grandma about how I want to be a landlord, and do a House hack. I told her about how since most of my income until the past few months has been saved through my life with no w-2, I can't start my dreams for another couple years through FHA means. Suddenly she didn't hesitate to say she would loan me 100k, or anything for that matter. I asked what rate and she just threw out 5%, with a balloon on the end for the full loan, but really she said "whatever would make it a great deal for you" (I don't want to just take advantage either, but a good deal is a good deal. She said she doesn't care to make lots of money anyway and its just sitting there.)

I thought It would be sweet to do a BRRRR on a 100k property and pay the 5% a month plus the balloon back in full in that two year window, but I was like there's no way I can even find a 1 bed 1 bath HOUSE for 100k in my area, and looking on Zillow/realtor I was right. They are only mobile homes on rented land, and I don't think I want to get into all of that mess, especially with a BRRRR and as my first deal. It scares me.

Anyways, my main questions are based upon a hypothetical. I believe I can find some pretty nice multifamily units in my area for 350-500k. Is it possible for me to do something like take a 20-30k loan (at 5% interest) from my grandma combined with my own 20k in savings (40-50k total) to use for an FHA down payment, closing costs, and needed repairs plus have cash in reserves? How would a bank (or wherever I get an FHA loan from) react to this? Remember I still don't have 2 years of w-2 but does having her cover the costs make a difference?

For extra details: Her loan would probably end up being a 5% interest rate for 2 or 3 years and a 20-30k balloon at the end of the 2 or 3 years. She really is letting me set the terms if I do this, and if I take a 30k or even 20k loan from her it could potentially only add 100-180$ to my monthly costs each month for running the property. I could easily work my w-2 jobs over a couple years and save that 20-30k to pay the balloon back. My savings rate is about $2200-2500 a month, and I also think with a solid deal on something from a tri to a five plex, maybe I could get decent cashflow to help me even more prepare for that balloon, heck even pay the balloon a year early if the terms allowed it in our contract.

Please respond with any additional questions if you need them to help answer mine. I hope this made sense to read. My apologies for any confusion.

.
Forget all of this, buy grandma some flowers and give her a big hug.

5 Reply

Wale LawalBusiness Member

Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes

1y

@Ethan Tomlinson

You're in an amazing position for 22—$20K saved and a family member willing to offer creative financing is a powerful combo. Unfortunately, to qualify for an FHA loan, you still need to meet standard requirements like 2 years of W-2 income or steady self-employment, regardless of how much help you get for the down payment or reserves. But here's the play: consider using your grandma's loan as a bridge to buy a small multifamily with seller or private financing, then refinance into a conventional loan later once you qualify. Work on finding lenders, creative strategies, and evaluating a BRRRR deal the smart way.

Good luck!

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1 Reply

Bryant Jaske-Moser

Member since 2024 · 13 posts · 12 votes

1y

Hi Ethan,

I'm a total noobie. I get how you don't want to take advantage of a family member, and I get not wanting to fail. BUT

If you are going to rent out the property, make sure you have a lease (short term, mid term, or long term), and ensure your balloon payment is about 3 years or more after the start of the lease. This helps ensure you have cash flow to pay down the principle. With 2 years or more of renters on leases you would claim that on your tax returns which will count the same as W-2 income

At the end of the lease, you can refinance and take the cash out to pay off your grandmother. It's like the BRRR method, but it's riskier because you are banking on regular appreciation instead of forced appreciation. This is also a little more passive, and requires you to buy in an area likely to grow so look at job growth, unemployment rates, etc.

just my thoughts hope it helps.

2 Reply

Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
1y
Quote from @Bryant Jaske-Moser:

Hi Ethan,

I'm a total noobie. I get how you don't want to take advantage of a family member, and I get not wanting to fail. BUT

If you are going to rent out the property, make sure you have a lease (short term, mid term, or long term), and ensure your balloon payment is about 3 years or more after the start of the lease. This helps ensure you have cash flow to pay down the principle. With 2 years or more of renters on leases you would claim that on your tax returns which will count the same as W-2 income

At the end of the lease, you can refinance and take the cash out to pay off your grandmother. It's like the BRRR method, but it's riskier because you are banking on regular appreciation instead of forced appreciation. This is also a little more passive, and requires you to buy in an area likely to grow so look at job growth, unemployment rates, etc.

just my thoughts hope it helps.
It's not that simple. Yes, you can do all those things, but you better learn a lot about all those things before you try to do any of them. As a total newbie, he lacks the knowledge needed. To say, it's easy so just jump in, as it was stated above, is irresponsible.
2 Reply
Bryant Jaske-Moser
Member since 2024 · 13 posts · 12 votes
1y
@Joe Villeneuve my suggestion is not irresponsible. But maybe I misunderstood the terms of the deal.
#1. I'm under the impression Grandma offered to lend 100% of the purchase price. If I misunderstood and grandma is ONLY lending the down payment, then I agree with Joe. That's irresponsible, don't do it because that is over leveraging.

If I understood correctly, and Grandma is offering to finance 100% of the cost, then as I said ... get people in with a lease ... track all income/expenses and claim it on you taxes (which is a must), then go to a bank after 2 years or more of tax returns to get a loan that pays off grandma's loan. My suggestion is to get around the W-2 issue.

#2- have you heard of DSCR loans? They look at your credit and the potential income of the property instead of your W-2. Instead of borrowing from grandma you could look at this as an option. Or you can borrow some from grandma to help with DP, but I don't recommend it. I only recommend accepting the loan if it's for 100% of property cost (minus your down payment), so you have 1 loan to manage at a time, you can more easily pay down the principal, and at the end of the loan term you can get that first bank loan to take care of the balloon payment to grandma.

#3 do you know how to financially plan for expenses? "Rule of thumb" changes based on property type (new vs old vs rhab). If it's a new build, keep 1% of purchase price is cash reserves, account for monthly principle/interest payments (aka PI), 30% of the monthly rent should be added to your cash reserves to cover future expenses/problems/taxes/property management.
Some people might say 20% to cash reserves, but instead of PI, they account for PITI which is principle/interet/taxes/insurance.
If you buy an older home, assume you need a lot more in cash reserves. Being young (and I assume inexperienced in construction/rehabs) I would suggest looking for a deal on a new build.

Whatever you do Ethan, don't over borrow or over leverage the property. Whatever you save, before signing a contract or paying a DP, ensure you keep a certain amount of money in cash reserves to cover unexpected expenses.

***I may be new at real estate, but I am not new to investments/risk management. Everyone has different risk tolerances, but there is a difference between risk and irresponsibility; which is what I assume Joe was getting at. So don't over leverage, and keep cash reserves. Some people say keep more cash reserves that my recommendation. I feel my recommendation is very conservative for a new build.
0 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
1y
Quote from @Bryant Jaske-Moser:

@Joe Villeneuve my suggestion is not irresponsible. But maybe I misunderstood the terms of the deal.
#1. I'm under the impression Grandma offered to lend 100% of the purchase price. If I misunderstood and grandma is ONLY lending the down payment, then I agree with Joe. That's irresponsible, don't do it because that is over leveraging.

If I understood correctly, and Grandma is offering to finance 100% of the cost, then as I said ... get people in with a lease ... track all income/expenses and claim it on you taxes (which is a must), then go to a bank after 2 years or more of tax returns to get a loan that pays off grandma's loan. My suggestion is to get around the W-2 issue.

#2- have you heard of DSCR loans? They look at your credit and the potential income of the property instead of your W-2. Instead of borrowing from grandma you could look at this as an option. Or you can borrow some from grandma to help with DP, but I don't recommend it. I only recommend accepting the loan if it's for 100% of property cost (minus your down payment), so you have 1 loan to manage at a time, you can more easily pay down the principal, and at the end of the loan term you can get that first bank loan to take care of the balloon payment to grandma.

#3 do you know how to financially plan for expenses? "Rule of thumb" changes based on property type (new vs old vs rhab). If it's a new build, keep 1% of purchase price is cash reserves, account for monthly principle/interest payments (aka PI), 30% of the monthly rent should be added to your cash reserves to cover future expenses/problems/taxes/property management.
Some people might say 20% to cash reserves, but instead of PI, they account for PITI which is principle/interet/taxes/insurance.
If you buy an older home, assume you need a lot more in cash reserves. Being young (and I assume inexperienced in construction/rehabs) I would suggest looking for a deal on a new build.

Whatever you do Ethan, don't over borrow or over leverage the property. Whatever you save, before signing a contract or paying a DP, ensure you keep a certain amount of money in cash reserves to cover unexpected expenses.

***I may be new at real estate, but I am not new to investments/risk management. Everyone has different risk tolerances, but there is a difference between risk and irresponsibility; which is what I assume Joe was getting at. So don't over leverage, and keep cash reserves. Some people say keep more cash reserves that my recommendation. I feel my recommendation is very conservative for a new build.
Real Estate Investing isn't like any other type of investing. I stand by what I said.
2 Reply

Marcus R.

Real Estate Agent · Denver CO · Member since 2019 · 209 posts · 332 votes

1y

I'm with James and Nick on this one. My suggestion would be to turn down the money altogether. Why? Because you don't need it. Your grandma's offer means she believes in you and that's worth more than the money.

Now since she believes in you go and make it happen. Short term this will be harder than the easy path but long term you'll be much better off in all areas of life. You can't be a champion without going through the grind. Don't run from the grind, embrace it.

6 Reply

James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

1y

@Ethan Tomlinson all this jazzy talk on finance this way, finance that way, FHA this, FHA that.... Forget all that noise!

Remember when I said keep it SIMPLE.

You want to be an Investor/Landlord. Ok, keep it SIMPLE. You will be using DSCR financing.

Why?

Because that is financing literally designed for landlords and Landlording.

It will give an assist in analysis because there looking at the property, the performance of the property to secure the financing. It forces you to do and understand all that math which is paramount for long-term success.

The "oh no but it will cost you 1% more on interest"..... No, it won't, it will cost your tenant. Because that's who's actually paying to cover all debt service isn't it, the tenant?

Keep your priorities straight.

1st priority is geting "in", cracking that nut of going from 0 too 1, doing it SAFELY, profitably, in a way that set's a stage for the next priority of getting from 1 too 2.

That means this first 1 is all about SAFE, learning, cutting your teeth. The learning is worth it's weight in gold.

The Carpenters Creed is applicable here: Slow is Steady and Steady is Fast.

Keep it simple, small steps forward, that will add up over time to being a staircase into the clouds.

2 Reply

Ethan Tomlinson
OP
Member since 2021 · 11 posts · 15 votes
1y
Quote from @James Hamling:

@Ethan Tomlinson all this jazzy talk on finance this way, finance that way, FHA this, FHA that.... Forget all that noise!
Remember when I said keep it SIMPLE.
You want to be an Investor/Landlord. Ok, keep it SIMPLE. You will be using DSCR financing.
Why?
Because that is financing literally designed for landlords and Landlording.
It will give an assist in analysis because there looking at the property, the performance of the property to secure the financing. It forces you to do and understand all that math which is paramount for long-term success.
The "oh no but it will cost you 1% more on interest"..... No, it won't, it will cost your tenant. Because that's who's actually paying to cover all debt service isn't it, the tenant?
Keep your priorities straight.
1st priority is geting "in", cracking that nut of going from 0 too 1, doing it SAFELY, profitably, in a way that set's a stage for the next priority of getting from 1 too 2.
That means this first 1 is all about SAFE, learning, cutting your teeth. The learning is worth it's weight in gold.
The Carpenters Creed is applicable here: Slow is Steady and Steady is Fast.
Keep it simple, small steps forward, that will add up over time to being a staircase into the clouds.

Thank you! I'm going to review a lot of the amazing advice being given and think about it hard before I make any decisions. And while I think and plan I'll just keep working and saving for the moment. A DSCR sounds quite intriguing, and I had completely forgot they existed.

2 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
1y
Quote from @Ethan Tomlinson:

Quote from @James Hamling:

@Ethan Tomlinson all this jazzy talk on finance this way, finance that way, FHA this, FHA that.... Forget all that noise!
Remember when I said keep it SIMPLE.
You want to be an Investor/Landlord. Ok, keep it SIMPLE. You will be using DSCR financing.
Why?
Because that is financing literally designed for landlords and Landlording.
It will give an assist in analysis because there looking at the property, the performance of the property to secure the financing. It forces you to do and understand all that math which is paramount for long-term success.
The "oh no but it will cost you 1% more on interest"..... No, it won't, it will cost your tenant. Because that's who's actually paying to cover all debt service isn't it, the tenant?
Keep your priorities straight.
1st priority is geting "in", cracking that nut of going from 0 too 1, doing it SAFELY, profitably, in a way that set's a stage for the next priority of getting from 1 too 2.
That means this first 1 is all about SAFE, learning, cutting your teeth. The learning is worth it's weight in gold.
The Carpenters Creed is applicable here: Slow is Steady and Steady is Fast.
Keep it simple, small steps forward, that will add up over time to being a staircase into the clouds.

Thank you! I'm going to review a lot of the amazing advice being given and think about it hard before I make any decisions. And while I think and plan I'll just keep working and saving for the moment. A DSCR sounds quite intriguing, and I had completely forgot they existed.

And as a Grandfather myself, I truly mean what I said about do it backwards. Grandma buys the home, own's the home, it's her investment property and her 100% control that she let's you earn from her.
I'd be so jazzed if one of my Grandsons came to me to do/earn such. We'd be ecstatic to sell it to them in 2yrs after earning it for $0 profit ourselves. Actually we'd probably do it at a loss, because it's an inheritance we get to enjoy with the Grandkids. And that is SO valuable as a Grandparent.
Your doing good putting such care and patience into it all. Don't change that.
0 Reply

Derek Smith

Real Estate Agent · Austin, TX · Member since 2022 · 19 posts · 10 votes

1y

I work with a very experienced developer in Austin TX who could always use some pursuit money (funds to work on entitlements and pre-development tasks during feasibility period). Last I heard he'd pay 8-10%, leaving the spread as profit for you. Message me if you want to connect with him and see his track record.

0 Reply

James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
1y
Quote from @Derek Smith:

I work with a very experienced developer in Austin TX who could always use some pursuit money (funds to work on entitlements and pre-development tasks during feasibility period). Last I heard he'd pay 8-10%, leaving the spread as profit for you. Message me if you want to connect with him and see his track record.

Why isn't he calling @Jay Hinrichs like every other smart developer?
0 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

1y

Quote from @James Hamling:

Quote from @Matt Menard:

@Jay Hinrichs Hi! What I am presenting is a deal much better than a single family home. You do not need decades of experience in being a landlord. In fact, it is a poor strategy. Start out big enough to have a management company be the landlord.

I am shocked to see someone self-admitting there so brand new to REI that there working on there 1st deal themself but at same time pandering for people to jump in as LP's on there syndication......

Is this real? It's gotta be a joke, right????

I noticed the same thing. That is the definition of being irresponsible, and taking advantage of someone that is green because they have money to burn, and have not idea how to do it. Shameful.

1 Reply

Stephen MoralesBusiness Member

Jacksonville, FL · Member since 2025 · 402 posts · 205 votes

1y

Quote from @Jay Hinrichs:

Quote from @Matt Menard:

Hi Ethan,

If you are interested in investing, I have a great team who is currently raising money for a 452 door complex. You do not want to be a landlord and need to look bigger. This would be a great first step to getting you there. Reach out if you have any questions.

Matt be very cautious of post like this.. you dont want to start out in some massive syndication with people hitting you up on the internet.. Just sayin..

I think you can have your grandmother lend you down payment for a house hack FHA there in ID go with that to start.. get some experience handling one tenant and a place to live by far your best way to start you have decades to work at this.

Great advice Jay!

[email protected]

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Stephen MoralesBusiness Member

Jacksonville, FL · Member since 2025 · 402 posts · 205 votes

1y

Quote from @Ethan Tomlinson:

I just found myself in a strange situation and maybe a wonderful opportunity. I am 22 and I have zero experience in owning rental property. I have been saving up money to finally make my first move into real estate, but the thing holding me back at this point is 2 years of w-2 in order to get an FHA loan. I have 20k saved on my own over the course of my life, mostly through random short jobs and never spending money.

Tonight I went to a local real estate meetup and met cool people, talked about a few different things, but when I got home I told my Grandma about how I want to be a landlord, and do a House hack. I told her about how since most of my income until the past few months has been saved through my life with no w-2, I can't start my dreams for another couple years through FHA means. Suddenly she didn't hesitate to say she would loan me 100k, or anything for that matter. I asked what rate and she just threw out 5%, with a balloon on the end for the full loan, but really she said "whatever would make it a great deal for you" (I don't want to just take advantage either, but a good deal is a good deal. She said she doesn't care to make lots of money anyway and its just sitting there.)

I thought It would be sweet to do a BRRRR on a 100k property and pay the 5% a month plus the balloon back in full in that two year window, but I was like there's no way I can even find a 1 bed 1 bath HOUSE for 100k in my area, and looking on Zillow/realtor I was right. They are only mobile homes on rented land, and I don't think I want to get into all of that mess, especially with a BRRRR and as my first deal. It scares me.

Anyways, my main questions are based upon a hypothetical. I believe I can find some pretty nice multifamily units in my area for 350-500k. Is it possible for me to do something like take a 20-30k loan (at 5% interest) from my grandma combined with my own 20k in savings (40-50k total) to use for an FHA down payment, closing costs, and needed repairs plus have cash in reserves? How would a bank (or wherever I get an FHA loan from) react to this? Remember I still don't have 2 years of w-2 but does having her cover the costs make a difference?

For extra details: Her loan would probably end up being a 5% interest rate for 2 or 3 years and a 20-30k balloon at the end of the 2 or 3 years. She really is letting me set the terms if I do this, and if I take a 30k or even 20k loan from her it could potentially only add 100-180$ to my monthly costs each month for running the property. I could easily work my w-2 jobs over a couple years and save that 20-30k to pay the balloon back. My savings rate is about $2200-2500 a month, and I also think with a solid deal on something from a tri to a five plex, maybe I could get decent cashflow to help me even more prepare for that balloon, heck even pay the balloon a year early if the terms allowed it in our contract.

Please respond with any additional questions if you need them to help answer mine. I hope this made sense to read. My apologies for any confusion.

As you may have realized by now you cannot get approved for an FHA loan if you do not have proper income history. You need 2 years of steady income that shows that you can afford the month PITI payments on the loan. If your income is inconsistent, you still need 2 full years of tax returns showing that you have the income to make the payments going forward.

I'm assuming that your DTI is fairly low so you should be good there.

Depending on how you structure this deal with your Grandma, the FHA will most likely count the loan from your grandma as debt. This will effect what you can qualify for.

FHA does allow gifted funds though ;)

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Grandma will loan me anything at 5% rate

Grandma will loan me anything at 5% rate

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