Private loan to fund future commercial land purchase

[Greg Houts]

I've heard "cash is king". I'd argue that "cash flow" is even more important for any business owner or active investor. I'm currently in a position where we have three rehabs underway, with renters expected in all three properties between Sept and Dec. The two most cash-intensive properties currently have no mortgage (i.e., all-cash investment and rehab) and will require approx. $275k to complete. I plan to cash-out refi once the rehabs are completed and the properties qualify for a mortgage loan. Given market appreciation, those refis will return multiple six figures, which I plan to leverage for future investments.

I was planning on playing it cool, finishing the existing rehabs, focusing on getting great tenants and completing the refis by year-end. Let the dust settle, get all accounting and tax filings completed, etc.

An opportunity to purchase 60 acres of commercial land in NC (in a prime location) recently became available. That land would be leveraged to create sustainable, cash-flow-positive business that I plan to pivot into once the BRRRRs are completed. I have partners who bring experience to the table, but they are also in a cash flow bind with their other investments. So we have a net investment gap/shortfall of $325-350k in order to make a cash offer on the land.

I have friends and family (and friends of friends) with deep pockets. I need a personal loan to cover the 3-6 month gap between completing the existing projects and being able to pay of the loan(s) with the cash equity received once they're completed. That would allow me to have my cake and eat it to (finish existing projects while simultaneously buying the land for the future business). There's absolutely risk that the refis wouldn't go through, but I think it's minimal (I have a well-paying, full-time job and excellent credit).

My plan is to approach friends/family for a 12-mo, 6% loan with 30-yr amortization. Interest payments made quarterly, with a final balloon payment of principal plus remaining interest. No mortgage lien attached. I plan to get commercial financing once the land is acquired; however, there is a huge amount of work required to prepare a full-blown business plan and pitch to commercial lenders (i.e., this land will be long gone before then). 

Please opine if you think I'm completely bonkers. Looking for advice on how best to approach people for something like this. Thanks in advance!