Fixed Interest Payment for OPM

[Kyle Souleyrette]

I have the opportunity to invest in single family homes in my local market in Central Kentucky. A friend of mine came to me with the idea to use other people's money to completely finance a deal, perform any rehab that needs to be done, and then hold it as a rental. The investor would be the first and only lien holder on the property. The financing would be set up on a demand note, with a fixed interest rate paid annually. 

For Example: If the investor puts up $180,000; let's say: $150,000 for purchase and $30,000 for renovations. After the renovations are done, the property is held and managed by me as a rental. The rent goes to me, I pay the investor the annual interest payment, and I handle the management of the property. Then, in 10 years (or any time period) if I, or the investor wants out, the property will be sold. The investor is paid back their principal and any appreciation that has occurred over time goes to me. 

Has anyone ever financed deals like this, and have any guidance or warnings for it?  This seems like an ideal way to finance properties, but I really want to hear the other side of this method.