Family gave us substantial start up money, need help figuring out

[Christopher Lamp]

A family member gave my girlfriend and I a gift of a substantial amount of money to start a business. My mind immediately goes towards investing in real estate but I don't know where to start. We made an LLC but not sure if that's necessary. I think what I would like to do is flip homes but I'm not sure how that's possible, whose credit to use (mine or businesses?), if we could even get financed as an LLC for a flip, who to go to to get financed. etc... We are in the Denver area if that helps or you can put me in touch with anyone.

I appreciate the help in advance, thank you.

[Candyce Chen]

Hello @Christopher Lamp,

Congratulation on getting your startup fund from a family member. That's the best way to start. I admire your courage to pick up a flipping project on your first deal as it is harder than buying a turnkey or a minor rehab property. 

1. LLC - unless you need to share the equity or profit with this family member, otherwise I don't think it is necessary to have the LLC for the first deal because you do not have a property or tenants yet IMO.

2. Internet: LLC will be under commercial and not residential loan. Interest rate percentage is different. The lender will look at your rental income under LLC. Since you do not have a property under LLC yet, it might be harder to get a loan under LLC. LLC or commercial loan might be ARM and balloon payment vs. personal will be a fixed rate mortgage

2. Fix & Flip - you might need an experienced partner or a project manager that knows about the construction unless you are going to oversee the project yourself.

3. Gift or Estate taxes - This is minor, but I will suggest to look into gift taxes in your state, so you do not end up paying extra taxes on the gift for 2021. Parents can give up to $15K per year for children. Federal estate tax is $11.58 millions in the 2020 tax year. You might need to check on your state law for more details. Some states are very specific about it. 

4. Title: not sure if this family member needs to be on the title. You might want to check the probate law in your state to ensure there is no issue on this in the future during the sell.

5. Credit: if you have a good credit score and have less than 10 properties. Your credit might work better to get a lower interest rate than a business loan. 

6. Finance: Hard money loan, private lending, or some local credit unions might be better. Big banks will not fund a distressed / fixer upper property.  If you have a good relationship with a local small bank, they might be willing to work with you for a construction loan. 

7. Contractors: It's very hard to find a general contractor or sub-contractors due to surge of demand. I will recommend you check to make sure a general contractor is available based on your timeline before starting the project. 

8. Realtor: You would also need a good realtor that understand investors/flipper and have lots of local connections. It's harder to find a realtor that wants to deal with foreclosure /short sales/for sales by owners/distressed properties. 

Hope those tips help. It is my personal experience, please do check with your legal/CPAs/lenders for advices in your particular state. Best luck on your project! 

Candy