Using my friend's HELOC to finance my Brrrr

[Pedro Urena]

I would like to use a friend's home equity to finance a deal. The problem is that we don't know how to structure the loan between us. Since she is going to have to pay interest on her HELOC, how much higher of a percentage should I offer? Or, should I offer whatever is left after the refinancing of my Brrrr? Is there a standard when using money from somebody else's home equity to finance a deal? Any help is appreciated.

[Sunny Shakhawala]

@Pedro Urena,

Just like @Jaysen Medhurst said, you can structure this deal however you want. 

Here are my suggestions on putting it together. 

1) Protect your friend. They are doing you a huge service. Your #1 priority should be securing their investment. 

2) Get all your docs in order. At the very last, you'll need a promissory note, a mortgage, & a personal guaranty. 

3) Prepay Insurance on the property for 1 year and name your friend as the lender.

4) Use a reputable / reliable / recommended title company for closing (they will record the mortgage for you with the county). They will also provide a loan policy for your friend. 

As far as the terms go...

Private Money Loans float anywhere from as low as 0 points and 8% to 2 points and 12%. If this is your first deal, I'd model 2 points and 12% and make sure it still works. 

I'd say a maturity date of 9 months should suffice.

Depends on the deal, but I wouldn't want to be in it for more than 65-70% LTV as the lender.

So I'd probably require you to put 20% down and then work out a draw schedule for rehab. 

Hope this is enough to get you started. 

If you want to talk more about this, just DM me. Gluck!