Private Lender for Down Payment

[Jim Stevenson]

I'm looking at purchasing a quad for $90k. I have a friend who can supply the 20% down payment. I would then use $30k of my own money to get it rent ready. The way I'm thinking of structuring the loan would be to pay my friend $100/month for the next 18 months and then pay them the entire $18k back that I borrowed after I refinance.

I know I can't use gift money from a friend for the down payment so what are my options? Set up an LLC?

[Jon Deavers]

@Jim Stevenson If you incorporate an LLC you and your partner can both insert funds and the LLC will be the borrower on the note. That will still require a personal guarantee on the loan since your new LLC won't have a track record. I agree with the concern about it not qualifying for a conventional loan if it needs $30k in repairs but if you're talking about upgrades (adding HVAC or refinishing cosmetics, etc) you may be okay. I would look for a small business banker if you go that route and run into difficulty with a conventional mortgage. They will lend to your new LLC with a personal guarantee and most SB commercial lenders underwrite in house and will often carry the loan in their portfolio so getting past property condition requirements could be easier (especially with a plan to immediately improve property condition via rehab budget).

You can always incorporate with by-laws that outline the enter/exit conditions of your partner or define him/her as an outside investor. A good RE attorney can give good suggestions for how to structure the partnership while they do the incorporation for you.

Hope this helps!