How to structure buy & hold private money loan

[Jenna Y.]

Hello! New investor here. I'm considering acquiring a modest cabin for 50k as a vacation rental after a small rehab (15k).

I currently self-manage a family vacation property with similar numbers and have had strong returns. So I know what to expect regarding expenses, marketing, risks. It's also enjoyed some success for its design and decor, which has directly contributed to its extremely high occupancy rate (more than 90%). My husband has extensive carpentry background and does the major repairs and maintenance on a quarterly basis.

I have enough capital to 100% fund this new deal outright myself, however hopefully within this year I plan to purchase a primary residence as a first-time buyer - a duplex/triplex in the Bay Area California. I'll need a significant amount of my capital for the downpayment. I recognize that living/buying in California won't give me as desirable a cash-flow as elsewhere, but it is where I choose to live for other reasons.

Here's the deal:
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Property Price: $50,000
Improvements: $15,000
Closing Cost for Private Loan: ?
Total Cost: $65,000 + closing costs

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Monthly Total Rent (based on ten comps): $3,162

MONTHLY EXPENSES based on current rental
Vacancy Allowance 26% (conservatively based on ten comps): $822
Utilities (15 trash, 100 electricity, 50 gas, 65 water, 80 internet): $245
Supplies budget (dish soap, etc) $30
Groundskeeper/Repairs (5% gross income) $158
Capital expenses reserve (5% gross income) $158
Quarterly maintenance fund (5% gross income) $158
Insurance $67
1.2% Property tax $60

TOTAL MONTHLY EXPENSES: $1,698

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Monthly NOI $1,464
Annual NOI $17,563
Cap rate (NOI/ total cost): roughly 27.02% (closing costs TBD)

Two specific questions:

1) I would like to finance this deal via private money. Some family/friends stated interest in lending, as they've seen the monetary success of the first vacation rental. What might be a private loan structure that would make sense for all? For them, their expectations are for returns better than traditional investments. I'm guessing a five year term would be the longest that would be reasonable to ask for. For me, I'd like to keep as much of the cash-flow as I long as I can for investment purposes.

Structure #1: I kick in 15k, finance 50k. 5-year term at 5%. Monthly payment: $849. This would still cash-flow comfortably.

Structure #2: 6% interest amortized over 20 years with a 5 year balloon payment. Monthly payment: $300.

Thoughts? Other suggested structures?


2) Considering that I'm trying to save up for a downpayment on my primary residence, does it make sense to put my money/time/effort into a smaller deal like this?

Investing in CA requires so much upfront capital - this deal is attractive because I can get in the game, leveraging our talents/skills and generating a healthy cash flow at 1/7 of the price. But it will tie up some of my capital, which would otherwise go towards that monster downpayment of yet-to-be-materialized primary residence deal in the Bay Area, CA (where speculatively rewards gained in appreciation not cash flow).

Additional thoughts?