Borrowing from my aunt

[Nik Parks]

Hey guys,

I looked for a similar thread and couldn't find one. If a similar question has already been answered, feel free to point me in that direction :)

Basically, my aunt wants to partner up on REI. However, I think it would be better to get a loan from her instead of partnering together as investors. She wants to put in the money and just receive a RIO, and that's completely fine as far as I'm concerned. However, I would want control over the asset if I'm putting in the sweat equity. If I decide to sell or refinance down the road, I wouldn't want to have to convince a partner to agree with me. I would want to just be able to do it. I apologize if this is a really long question.

Here's what I'm thinking. Is this realistic? Is this a good strategy? Keep in mind, I'm keeping the numbers simple in this example.

Let's say I borrow $20,000 from her for a 10 year loan at 6.5%. I haven't pitched these numbers to her so if these are good…bad…whatever, I'd love to know what you guys think :)

From what I understand, a traditional mortgage lender will see this as a red flag as I'm essentially borrowing money in order to borrow money. So I may be better off finding someone who will do seller financing (I'm willing to make a lot of phone calls). I can also negotiate the mortgage rate with the seller if I take this route?

I read  Brandon Turner's eBook and I love his strategy. Let's say I find a house that's worth $100k, I purchase it for $80k, and put $20k down. I try to charge 1% - 2% of the value in rent each month ($1k - $2k per mo). But I understand it's difficult to even get 1% per month now-a-days?

Am I correct in thinking that I would pay my aunt $227.10 per month for 10 years. She would receive a total of $27,251.30 or a 36.26% ROI. This would be a good deal for her, right? She just wants to put the money in. She isn't interested in putting in the research or sweat equity and, again, that's fine.

That means I would pay my aunt $227.10 per month and I'd pay the seller, if I get a current mortgage at 3.554%, $270.90 per month. That's a total of $498 per month excluding taxes, repairs, etc. That's really going to cut into my cash flow, but if I can implement Brandon's strategy and increase the value by 10% within the first 12 months via minor repairs, I can build equity.

Am I calculated this correctly? I think I'm getting thrown off somewhere. I think I'm getting thrown off because I'm talking about seller financing and borrowing the down payment.

Year 1: the house is worth $100,000. But I pay it at $80,000. I put $20,000 of my aunt's money down, leaving $60,000 to pay the owner. That means I already have $20,000 in equity because I bought at a discount.

Year2: the house is worth $110,000 because I increased the value by 10% via minor repairs. This means I have $30,000 in equity.

What's my next move? What would make this a good strategy? Or is this entire strategy flawed?

Thanks guys. Again, sorry if this is a really long and convoluted question.