Borrowing Private Money - Family & Friends

[Michael Reyes]

Good Morning BP Community,

I'm looking for your experience and/or advice on borrowing money from family & friends. Although I don't have an opportunity to make an offer, I want to get money sourced ahead of  when I find that first opportunity.  Some of my questions:

• What interest rate do you offer?
• Do you use some sort of formula for different loan amounts that you use when borrowing money?
• Do you offer a different rate for family and friends?
• How did you approach them with your request?
• How did they respond?
• Were they skeptical at first and warm up to the idea of lending money or did they get turned off by the idea?

I've thought a lot about my business plan and am inclinded to present a Power Point Presentation via WebEx or GoToMeeting.  To me it shows that I've got a business plan and I'm serious about pursuing this business.

Any insight, thoughts, experiences anyone can offer would be greatly appreciated. Have a great day!

Cheers,

Michael

[Austin Fruechting]

I have never offered a deal to my family/friends that I wouldn't offer to an outside investor - Currently I do have two family members that are capital investors.  They got the exact deal I had structured and already done with outside investors. If you could only get a cash partner at 50/50, why would you give a family member less than you would a stranger?  

I have done a loan twice, and I have never offered loan terms worse than I could from other sources like HML. One of them is right now. Currently, I'm using a $50k loan right now from a family member for a flip I'm doing in cash and I'm giving them 12% APR. If the only money you could get would be at 10% interest, why pay them less than you would pay a stranger?

There are two reasons I treat them like any other investor or money source: 

1. I never want to look back and think that the only reason I accomplished what I did is because my family gave me special deals.  I wanted to make sure it was fully my accomplishment with no special leg up.
2. I also don't ever want them to feel like I'm taking advantage of them and that everything is fair both ways.