Pooling money from multiple sources

[Adam Curry]

Ok, who can help me out here. I'm looking at a potential rehab, and likely need $170-$200k for purchase+rehab+holding costs. Are there any legal issues with pooling money from multiple sources like family and friends? Thanks for you input! 

[Matt Taylor]

I use LLCs to loan money from diverse sources.

In my state (New Hampshire) it is cheap and easy to register a new LLC. I do that as the first step, which just involves going online and filling out a short web form and letting them charge your credit card $100. In 15 minutes you're done.

Then I write an LLC Operating Agreement using past templates and just change the names and dates. Each money source signs the operating agreement to become a member of the LLC.

I go online to the IRS and register for an EIN (employer ID number, even though there are no employees).   

I print out the EIN email that I receive from the IRS and the proof of LLC registration from the state and take them to the bank to open a checking account in the name of the LLC.

Each member sends a check to me made out to the LLC and I deposit those checks to the new account.

Once the checks have all cleared, we go to closing with the LLC as the mortgagee. You'll need a lawyer to draw up the promissory note, the mortgage and other documents. The new LLC holds the first (and usually only) mortgage. Interest payments are made out to the LLC and the manager of the LLC takes care of distributions to the partners.