Private money HELOC

6 Replies

Hi BP,

How should I structure this partnership? My parents are willing to "play bank" out of their HELOC (variable rate 4.5% base).

What kind of agreement/return is typical?

Would you do this over a conventional loan? FHA?

Thank you for your input!

Are you using their money for buy and hold or to flip?  You might consider letting them play the part of private lender while you use their funds for whatever you plan to do.  This way they can make whatever interest you both agree to and you keep the profits.  

Conventional loan or FHA would be for if your gonna either rent the home out of live in it for 1yr minimum.

Good luck

Have you asked them as to what terms they are thinking about? Usually the "golden rule" comes into play here. "The one who has the gold makes the rules," your parets have the gold.

Well if you look at other private money or HMLs you wouldn't be able to touch one of their loans for under 10%, being a new investor. Make it so your parnets still make some money in the deal and you get helped out by not having to go to a higher interest rate from another lender. 6%-7% would be a good deal for you. However if you are flipping you might want to give them a set percentage of the profits when you sell. See what they would prefer.

If I was planing on living in the place I would do an FHA loan without any questions. Like stated above though you must live in the place for at least one year.

If you are working with your parents, you should still treat your deal as a business transaction.My recommendation is to find an existing HELOC template. Here is an example from Liberty online. 

Also, you will be better off working with your parents because FHA has a lot of junk fees that can add up to as much as 4% of the transaction depending on what bank you work with.

What are you looking to do with the money? FHA loans only apply to primary residences. If you are looking to either flip or get into rentals, using that HELOC can be a great source of funds. You could buy properties for cash (depending on your market and how much the HELOC is for) and either rehab and sell, or do the BRRRR strategy and refinance out to a different lender to clear the HELOC. Then do it again and again.

Just ask them what they think is a fair return on top of the interest rate they are paying.  Heck, 1% over is better than what they'd get in a savings account, they might be happy with that.  Never know until you ask them.

@Rachel Luoto Unsure you will get an informed answer with the amount of information you have provided...can you give more detail? What is your strategy for using the money?

Everyone, thank you for your input! Currently looking for both buy and hold rentals and flips at the same time, my market supports both types of investment when done right, and there is enough available in the HELOC to make cash offers. I'm looking at FHA for an house-hack situation.

I will probably be asking a lot more questions as I go through the process! My goal is to have (combined with my boyfriend who is also buying) 1 million in assets by 2018

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