Private Money Lender

[Abby Robinson]

Hello Fellow BP Members. I have a private money lender who is interested in doing a SFH buy-and-hold investment with me. This isn't a partnership. His concern is that his investment won't qualify as passive income. I've done some research on my end and found that as long as the PML can show that his investment went toward the purchase/down payment/rehab of a rental property then it would qualify as passive income. I intend to utilize our relationship like I would for a hard-money lender. I would receive funds from him for the purchase and rehab of the home and then, after refinancing, pull money out of the home to pay off the debt (including interest) back to him. If this goes well for both parties, we'll likely continue down this road as long as both sides are seeing the benefit. My question is this: are there any extra steps the PML has to go through to ensure the income he receives is considered passive income? Am I completely wrong in thinking this is considered passive income? He wouldn't be receiving any portions of the rent once the property has a tenant living in it. He would simply receive the initial capital contribution with interest back.