Borrow down payment to fund a flip

[Gregg Fratto]

I have 30k in the bank and thinking about borrowing 40k from family member for down pymnt and going to a hard money lender for the 80% purchase price w/100% for rehab costs.

Ill use the "borrowed" money from the family member for the D/P and closing costs, keep my 30k for monthly payments to the "bank" and purchase a house for 110k, 50k rehab and fix and flip property ...pay back family member + 10% and "bank and profit 40k ...does this sound like a good idea ?

[George Despotopoulos]

@Jonathan Greene raises some very good points. In addition to that, most lenders, whether they're a "hard money lender" or not will want to see that you, the guarantor/borrower on the loan, have the requisite capital and reserves to get the deal done. If you're borrowing funds (from family) to then borrower more funds (from lender) it's usually a red flag for lenders. 

With that said, if the family member was willing to be a member of an LLC with you and potentially give a personal guarantee then that could be an option and help things out with financing.

Right now things are tight, lenders are more restrictive and conservative. I would expect to put 25% down and pay 2-3 points at closing. Additionally, most have an interest reserve of 3-12 months, which means that 3 - 12 months of loan payments will be held-back at closing and paid monthly out of escrow (instead of being auto-debited or manually paid by you).