Legal logistics of private financing

[Amanda Swetman]

My boyfriend and I have acquired our first rental in Austin TX! We got this property specifically because the city will allow you to build a 1,100 sf home on the back of the property (ADU accessory dwelling unit) Our goal was to use private money from a family member to fund building the back unit. What are the legal logistics that need to be done working with private money. They will be paying for 100% of the build and permitting and then we will turn it into a mortgage at the end of construction. We will do an 8% interwst rate with a balloon payment at the end. Are there any tax benefits for our private money lender? Can they literally just write checks to subs and contractors and then when we finance a mortgage in the end we hand them a check back? Thanks for the insight!! Amanda