Beginner's Question for Investing with Private Money

[Doug Karkow]

Hello BP community! This is my first post, so set your expectations low! Here goes ...

Rather than save my way to down payments using my W-2 income, it is easy to imagine how using private loans could accelerate my REI goals. Perhaps this is a bit naive, but are there any legal or financing concerns with using a private loan from friends/family for the down payment of an investment property (SEC regulations, underwriting difficulties, etc.)?

- Hypothetically, if I were to borrow $100,000 from my folks and try to buy a $100,000 house entirely with cash, will I run into any issues?

- How about if I borrowed $20,000 at 5% interest over 30 years - can I use that private loan to fund the down payment for this $100,000 house?

The thought process here is that I may be able to make a 15% (for example) return on my own cash while accepting the risks associated with real estate investing, whereas a private party may not want the risks or fluctuations in income and be perfectly happy with a 5% return on their loan. They could give me a loan with a guaranteed return (i.e. 5%), and I could use the loan to go after higher returns (i.e. 15%). They get their guaranteed income, and I get cash flow with no/low money down. Win-Win!

Can I do this?! If so, is it as simple as, "Hey Dad, can I borrow $20,000?"