Friends & Family Loans Vs Hardmoney and Investors

[Garry Burns]

I have been wondering what's better:

Asking friends & family to invest with me or keeping it arms length using professional investors or hardmoney lenders.

Obviously, there are the cost differences, but I am concerned about any potential emotional issues and more particularly friends and family pulling out because we didn't go with their choice of paint color (clearly this is an extreme example, but I'm sure it probably has happened before).

My wife and I currently own three homes. Without going into too much detail . . . under California's encouragement for ADUs, we built a new unit in the back of one of the properties. We used our own money to build it - I am also a GC so the costs were relatively minimal. This turned the property into a cash cow where we'll break even in less than a year.

We are now looking at selling one of our other rentals to invest in a property with the same potential to build an ADU.

The snag is we don't quite have enough cash on hand for the 30% down payment on an investment property and to build out the ADU. We've been talking about asking a few friends or family members if they'd like to invest with us. But, we're weary of the extra issues that could come along with that. We've also been thinking about hard money or trying to reach out private investors, but we're weary this route might erode the profits so far that it's not reasonable.

Anyone else had a similar experience? What did you guys do?

Thanks!

Garry