Borrowing money from friends/family? How much do you give them in interest?

Question

Hi guys, I am looking at buying a couple of buy and hold rental single unit properties with all cash. With that, I want to use mostly family and friends cash. If i were to borrow 80% of it with terms of 9 months, because the idea is to buy, fix it, rent it out and refinance it (which I am being told must be under my name for 6 months) and then pulling out the money on the refinance to pay back my family/friends. What kind of a contract do you guys use? If anyone has an example one, that would be much appreciated. Also, besides the contract, how much % do you pay them or if not on %, how much can you pay them or make this enticing for them? Lastly, at which point will I start having a problem with a bank not wanting to refinance me (after 2nd one, 3rd one, etc) and what is the bank looking at to determine this? Both my wife and I work full time steady jobs.

Sorry for the loaded question!

Thanks guys!

Joe

Sorry for the loaded question!

Thanks guys!

Joe

Account Closed · Answer

My HELOC is 1.99% interest only with Meriwest Credit Union.  My partner's HELOC is with East West Bank at 4.25%.  I don't think East West Bank lends in OR.

I just found out about U.S. Bank criteria this past Thursday from my loan officer. I'll find out more after I have closed on my cash purchase on 5/30.

All of my properties are in San Jose. Yep, my name and his name are on title, but his name is solely on the loan.  Here are a couple of catches.  All funds must come from his bank account. My name must be on the loan if the funds came from me. The funds in his account must be seasoned or traceable.  No gift funds can be used on investment properties.  Yes, there must be trust when a lot of money is seasoning in his account. :)

Account Closed · Answer

1% per month if less than 6 months. More than 6 months is prorated at an annual 10% interest. No points. All borrowed money is unsecured.  Interest is paid at the end.

Some lenders only require 6 months seasoning instead of 12 months. They will give you a loan based on FMV after 6 months.  They don't source the funds after 6 months.

Here in the Bay Area, U.S. Bank gives HELOC on investment property up to 85% FMV.  I'm about to find out next month if they will source the money on purchase made less than 6 months on HELOC.  We're doing a cash-out refinance on a 5th investment property under my buddy's name in mid June. We'll find out if we will have any hiccups and report back to you in late July or early August.

Good luck.

Joe Liu · Answer

Hi Minh, on the HELOC, whats the rate your paying? Those are up in the 6% right? Can you do a cash out on a normal conventional style one around 4-4.5%?

Also, where are your investment properties located? In California or out of state? Lastly, when you partner with a friend on an investment property, how does that work exactly? You and his name on the title, but just his name on the refi loan?

Thanks!

Joe