Hard Money and Private Money

Charlotte, North Carolina
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Hard Money and Private Money

Nicholas Acosta
Investor · Charlotte, NC · Member since 2021 · 17 posts · 9 votes

If I'm using an LLC to purchase a property with a hard money loan, but I am borrowing money from a family member for the downpayment.. How would I receive that money from my family member? Would it go to my personal account and then transfer to LLC bank account or does it have to be some other way? Does it have to be a loan with a contract and interest etc even if it's just someone letting me borrow downpayment money for my first few flips? How would that work? Please advise..Thank you

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John O'LearyPro Member
Lender · Winter Park, FL · Member since 2021 · 738 posts · 412 votes
3y

Good Morning Nicholas,

If the family member is on the LLC the funds can remain in the family members account and be wired to the title company directly from that account. If the family member is not listed on the LLC lenders will typically want to see the funds be wired from your personal account, or the account of the LLC purchasing the property/taking out the loan. Gifted funds are ok, so no loan needs to be in place.

[email protected]800-663-4122
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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    I would not recommend leveraging 100%

    1Reply
  • John O'LearyPro Member
    Lender · Winter Park, FL · Member since 2021 · 738 posts · 412 votes
    3y

    Good Morning Nicholas,

    If the family member is on the LLC the funds can remain in the family members account and be wired to the title company directly from that account. If the family member is not listed on the LLC lenders will typically want to see the funds be wired from your personal account, or the account of the LLC purchasing the property/taking out the loan. Gifted funds are ok, so no loan needs to be in place.

    [email protected]800-663-4122
    4Reply
  • Nicholas Acosta
    OP
    Investor · Charlotte, NC · Member since 2021 · 17 posts · 9 votes
    3y

    Thanks for the help @John O'Leary ! The family member is not on the LLC. So it sounds like I can receive a gift/donation from my family member to my LLC and then move forward just fine right? Everyone says to not mix up personal and LLC funds so I was concerned about transferring funds from my personal account to the LLC account... Thank you

    0Reply
  • Nicholas Acosta
    OP
    Investor · Charlotte, NC · Member since 2021 · 17 posts · 9 votes
    3y

    @Nicholas L. Why not?

    0Reply
  • John O'LearyPro Member
    Lender · Winter Park, FL · Member since 2021 · 738 posts · 412 votes
    3y
    Quote from @Nicholas Acosta:

    Thanks for the help @John O'Leary ! The family member is not on the LLC. So it sounds like I can receive a gift/donation from my family member to my LLC and then move forward just fine right? Everyone says to not mix up personal and LLC funds so I was concerned about transferring funds from my personal account to the LLC account... Thank you


    Just have the funds deposited into the LLC account. At worst the lender might request a letter of explanation, but that is a minor hurdle.

    [email protected]800-663-4122
    0Reply
  • Nicholas Acosta
    OP
    Investor · Charlotte, NC · Member since 2021 · 17 posts · 9 votes
    3y

    @John O'Leary Okay thank you! Makes sense :D 

    0Reply
  • John O'LearyPro Member
    Lender · Winter Park, FL · Member since 2021 · 738 posts · 412 votes
    3y
    Quote from @Nicholas Acosta:

    @John O'Leary Okay thank you! Makes sense :D 


     Check your DMs

    [email protected]800-663-4122
    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3y
    Quote from @Nicholas Acosta:

    If I'm using an LLC to purchase a property with a hard money loan, but I am borrowing money from a family member for the downpayment.. How would I receive that money from my family member? Would it go to my personal account and then transfer to LLC bank account or does it have to be some other way? Does it have to be a loan with a contract and interest etc even if it's just someone letting me borrow downpayment money for my first few flips? How would that work? Please advise..Thank you


     Hey Nicholas, 

    Most Hard Money Lenders do not source large deposits. So you can deposit into your business bank account with a basic LOE stating its a business purpose transaction. 

    [email protected]818-269-7983
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  • Nicholas Acosta
    OP
    Investor · Charlotte, NC · Member since 2021 · 17 posts · 9 votes
    3y
    Quote from @Erik Estrada:
    Quote from @Nicholas Acosta:

    If I'm using an LLC to purchase a property with a hard money loan, but I am borrowing money from a family member for the downpayment.. How would I receive that money from my family member? Would it go to my personal account and then transfer to LLC bank account or does it have to be some other way? Does it have to be a loan with a contract and interest etc even if it's just someone letting me borrow downpayment money for my first few flips? How would that work? Please advise..Thank you


     Hey Nicholas, 

    Most Hard Money Lenders do not source large deposits. So you can deposit into your business bank account with a basic LOE stating its a business purpose transaction. 

    THANKS! :) 


    0Reply
  • Jeff S.
    Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
    3y

    They could hand you a bag of cash, @Nicholas Acosta. Seriously.

    These are not conventional loans, which require you to justify your funding sources. There are no rules here except those made up by some lenders, and they are all different. Understand that when you take advice from private/hard money lenders on this board, they are giving you their rules alone. That is, they speak for no one else. Certainly not for us. We don’t care where you get your money and don't check. Thus, be careful of the DM’s. If their message can’t withstand public scrutiny, you’d be wise to be cautious.

    The better answer depends upon how secure you want your family to be. If this is just a personal handshake loan, then yes, a bag of cash is truly legal -- though the bank might question the deposit. Ha. Better they do a wire transfer or write you a check. You'd book the deposit as either a capital contribution or a loan to your LLC from your family members and perhaps offer them an informal note explaining the loan terms.

    If you want to properly secure the loan, like we do and which I strongly recommend, this will involve a note and recorded mortgage or deed of trust (state specific) and a number of other documents and disclosures, including even a personal guarantee. You don’t get these online or from a title company. They should be obtained from a lending attorney. Your family members should understand what they are getting into and spend an hour with one, so they understand their risks, which are significant, and their options if you default. It sounds like it wouldn’t kill you to sit in on this conversation, as well.

    Nothing will forever change a relationship faster than when money is involved – and usually for the worst, so I really recommend against borrowing from friends and family. Lecture over, and I know it won’t stop you, but it’s at least important to make this a formal loan. This forces all of you to act professionally and to also get some education.

    Good luck to you, Nicholas.

    3Reply
  • Brandon Rich
    Lender · Woodstock, GA · Member since 2023 · 16 posts · 5 votes
    3y

    Hi Nicholas,

    Aside from all the other great advice you received, I wanted to add something:

    Show as much available funds as possible! I know this is way more than what you asked for, but new flippers should know the below…

    If this is your first deal, you will want to show as much as possible in your bank account(s). Since the rehab budget is usually on a draw basis, you’ll want to show the lender enough funds for closing and to get the rehab going, and then some... I am also seeing more lenders offering their first-time borrowers Dutch loans (interest on the full loan amount), instead of a non-Dutch loan - which is interest on just the funded amount during the loan period. That will make a big difference in where your monthly payments start.

    For example - if the purchase, after your down payment, is $200K and the rehab is $100K, that makes the total loan amount $300K. With a Dutch loan at 12%, you’re looking at an interest only payment of $3K/month for the initial term period (usually between 6-12 months). With a non-Dutch loan, your interest only payments would start at $2K/month and increase as you take out your draws during the rehab. Granted that these types of loans are meant to be short term loans with no pre-pay penalties, it makes a difference when it’s interest only payments.

    It wouldn’t be a bad idea to work with a local broker. A good broker should know the above and help guide you in the right direction. Going directly to the lender may cost the same or more in some cases. Most brokers are paid by the lender and the lender usually charges the borrower the same points at closing with or without a broker involved. Some brokers are also correspondent lenders and have access to private capital, allowing them to provide more creative lending options (like getting a second mortgage on your investment property to repay your down payment after closing 😊). I’m already way off topic, so I’ll stop here lol!

    Best of luck to you!!

    0Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    no one else wants to discourage borrowing 100%?

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Nicholas Acosta:

    If I'm using an LLC to purchase a property with a hard money loan, but I am borrowing money from a family member for the downpayment.. How would I receive that money from my family member? Would it go to my personal account and then transfer to LLC bank account or does it have to be some other way? Does it have to be a loan with a contract and interest etc even if it's just someone letting me borrow downpayment money for my first few flips? How would that work? Please advise..Thank you


    If you want to make it more complicated but little bit more fun, put that cash into stock brokerage, then after 30 days cash it out to your LLC bank account LOL you can tell the lender oooh I just sold my stock to fund this.

    One time the conventional lender got so frustrated by tracking my source of fund , it was 4 layers like this.

    0Reply
  • Trevor DeSimone
    Investor · NH · Member since 2021 · 39 posts · 34 votes
    3y
    Quote from @Nicholas Acosta:

    Thanks for the help @John O'Leary ! The family member is not on the LLC. So it sounds like I can receive a gift/donation from my family member to my LLC and then move forward just fine right? Everyone says to not mix up personal and LLC funds so I was concerned about transferring funds from my personal account to the LLC account... Thank you


    This is true you don't want to comingle personal funds and financial assets of your corporation (Your LLC). The reason you don't want to comingle funds is because an LLC protects your personal assets in the event your company was to come against litigation. The individual suing your company can only go after company assets if structured as an LLC, however if you comingle funds inappropriately, the opposite party can argue those funds are associated with the business, even if they came from a personal account.

    However you can "fund" your business with deposits from a personal account if you business needs funding. The money has to come from somewhere. Just be sure to have your CPA track these transactions, or track them yourself and be weary about moving funds back and forth between personal and business accounts often. 

    1Reply
  • Mike Klarman
    Specialist · NJ · Member since 2022 · 1k+ posts · 657 votes
    3y

    If it is a personal loan, you do not need any official contract.  Personal loans are most times verbal/handshake deals.

    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    3y

    I would reach out to a lender on the best way to document the transfer.
    They will look at any and all large deposits made within the past 60 days.

    [email protected]917-280-8544
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