How to work a friend's money into a deal

4 Replies

Hey BP,

I'm looking for my next multifamily to owner occupy and am limited by my income and prices in the area - but need to stay somewhat close to Boston, MA for my full time job. 

I have a close friend with a large amount of cash who wants to lend me money to speed up the rate I can acquire properties. The plan is acquire 10+ unit multi's in the future but I need a place to live in the short term and thought this is a good way to get their toes wet with involvement on a first deal - a sort of proof of concept.

For this particular deal I'm still interested in bank lending and would use the friend's money as a down payment to increase the variety of locations I can buy.

My question is what are ways around the fact that a bank would not see the friend's money as a legitimate down payment, but as another form of a loan? How does my friend need to be worked into the deal for the bank to honor it? Co-sign? 

Thanks,

Nate

Form an llc and becomes a partner would probably be the easiest.  Other than that you may need to have his deposit sit in your account for a few months so it does not look like you borrowed it.  The biggest problem I have seen with doing this is that you would then need to pay his loan and the mortgage back at the same time.  That usually spreads the profits thin unless you got some super deal. 

Daniel and Pete are right on the money. That's the best way to secure your interests and make the bank warm and fuzzy. The question becomes, how do you disclose it on the HUD? If it's a lender that does not require seasoning... and most don't, then it probably just has to come from your bank account Nathan. Or you can take it in paper bags of cash and dump it on the closing table. (Just kidding... don't do that).

But if there is no sourcing or seasoning of the down payment required, then it might be best to keep your friend off the radar while still being legally compliant. Last thing you want is to set him up to become a guarantor if, God forbid, something should happen to you. Your outside agreement with him in the LLC should secure both your interests in that case.

Hope that helped. Good discussion...

N

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