Should you SYNDICATE THROUGH FAMILY!?

Question

A topic I constantly hear being debated about is syndicating through family members. What is a smarter business decision? Seeking hard money lenders for your first deal or asking friends and family to financially back you? What if your aunt/uncle is an venture capitalist who invests in anything but real estate? LETS HEAR SOME SUCCESS AND FAILURE STORIES ABOUT SYNDICATING WITH FAMILY MEMBERS!

Ryan Detig · Answer

@Scott Graham Thanks, I have been very fortunate. I borrowed money from my Dad first to do my first flip. He is pretty care free with his money and it was not doing anything for him (he literally had it in cash, wow) so there was not much hesitation there. After that I borrowed money from my brother, @Adam Detig for material purchase on the same flip. At that point I had turned him onto real estate so he was up to his ears in research and learning using bigger pockets so he was super excited to get involved. Later I borrowed money from my mom to buy a 'buy and hold' property. I was able to return her money quickly after I refinanced the property into my LLC. She was also not too hesitant to loan the money. I verbally talked through my out options with the property and made sure she understood what I was doing and what options I had if something went wrong. Because I was able to repay her quickly with more than expected interest (I threw in an extra $500 when I repaid her) she was more than willing to send me a check to purchase the flip house I am closing on tomorrow.While an over the phone discussion worked for Mom, Dad, and Brother, I took a much different approach when asking to borrow money from my grandparents. They had loaned me school money in the past which I had faithfully repaid over the last 5 years so there was some history established. When approaching them I wrote a very long email giving them the who, what, when, where, why and how answers. I broke down the cash flow and even double or tripled my expenses in the analysis to show them that even being super conservative it is still a good deal. Thankfully I was lucky enough to get a 85K property that grosses 2250 a month in contract so I had plenty extra to inflate the expenses and still show a good positive cash flow. After the email was sent we talked via facetime 2 or 3 days later and they said they were willing to loan me the money but 5% (which is what I purposed) was not going to work. They would not take over 2.5% interest. So far this process as been extremely smooth with no issues, which I am very thankful for. My first flip goes on the market tomorrow. I am a little anxious to repay the loans as this is my first flip I know it is not truly successful until the check is in hand. After that closes and I can repay some of these loans I am sure the confidence with my family will increase which will hopefully lead to future borrowing opportunities.

Adam Detig · Answer

Can confirm! @Ryan Detig got me hooked on learning about real estate through bigger pockets, books, and podcasts. I was excited to have my money work for me when he ask for a loan. I'm just looking forward to getting my money back from him so I can start buying my own properties!

Ryan Detig · Answer

@Scott Graham I have had great success borrowing money from family. I keep it very simple and sign a promissory note for the amount borrowed that states the terms we agree to. So far I have borrowed 220k from multiple family members including grandparents, brother, mother, and father. This has allowed me to acquire 2 flip properties and 4 buy and hold properties in the last 5 months. The great benefit from borrowing this way is my family members are very happy with 8% return (grandparents would not take more than 2.5% on a 5 year 15k loan) and no points. This has set me up to make more money on flips along with getting into cash flowing buy and hold properties with no money down because I am able to borrow the down payment. Another benefit of having built the confidence with family members is how fast private money can be acquired. Last week my realtor brought me a deal that had to close by tomorrow. I went and looked at the property, made a phone call, and had a 60k check in the mail the next day. I am closing on the flip tomorrow and expecting to clear 25k on the deal. These types of deals could potentially be missed if I was unwilling/unable to borrow from family.CAUTION: While I have not personally experienced any issues with my family and borrowing money, I have seen personally how money can tear families apart. Please make sure that you are well educated in the deals you are completing and that you treat the borrowed money as if it was your own money. Be prepared to pay it back over time if for some reason the deal goes bad. Make sure you communicate everything with the borrower and have the "What if" conversations before borrowing.

Adam Detig · Answer

Account Closed any ideas now! ;)

Account Closed · Answer

@Adam Detig, make sure he throws in an extra 5% on top to cover for the "Awesome Brother" tax.

Scott Graham · Answer

@Ryan Detig Those are some phenomenal results! Did you find family members to be extremely hesitant at first? What time of materials/documents did you put together and present to them?

David Dachtera · Answer

@Ryan DetigKudos for inspiring such trust and cooperation in your "warm market". You are indeed fortunate!