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Updated over 4 years ago on . Most recent reply
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Accepting and Paying Back Private Money
Situation:
I purchased my first home last year with the BRRRR strategy in mind utilizing a VA loan. Purchased for $75k and sought out a $30k personal loan from a family member for the rehab portion. I set up an LLC for wiring purposes from his LLC and on the advice of his CPA. I put the money to work over the last 6 months and the house appraised for double the purchase price during my cash out refinance (set to close next week).
I’m going to pull the equity out and use it toward my next purchase which I’m hunting for now.
Question(s):
I have an opportunity to utilize more private money from him after a recent conversation. Are there any red flags that come up with him wiring money from his LLC to mine (sole proprietorship for strictly REI) for me to draw on and use as I need/want?
Are there any tax concerns to worry about?
Recommendations moving forward if this relationship continues? (He’s not very experienced/involved in real estate)
Most Popular Reply
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His private loan should be documented with a note and a mortgage to secure him in the event something goes wrong with the deal or you die, for example. Otherwise his money is at serious risk. You should also provide lenders title insurance and list him as a mortgagee on your property insurance policy. If you do all of this properly, the transfer of money will be legit no matter how you look at it.