Is this a good deal for funding first rental?

[John Korinke]

Hello everyone, I'm looking to get my first single family rental property soon and was hoping to get some advice. I was planning on borrowing a 20% down payment along with rehab costs from my mom and giving her a 12% return on whatever she lends me. And getting a conventional loan. I'm hoping to be able to pay her back in full after a cash out refinance. If I can't pay her back in full then she would get the cash flow until it's all paid back plus 12%. Does this sound like a good deal for both of us or am I overlooking something? Is she allowed to give me that much money or do we need to be in a formal partnership? I believe you can only gift someone in the range of $14k? Thank you for your help in advance!

[Alexander Wardell]

I have a couple of questions. Yes, 12% is a great return for your mother, but was this negotiated at all? or is that the family rate? I do believe the tax limit for gifts is 15k but I am not an expert in any aspect of real estate so double check.

Is she only interested in getting a return on her investment or would she consider staying in the deal with you. You could use her money as a down payment, granted you do all the leg work, and split the cash flow ( or future expenses) from day one. Then you can refi and pull her money out and return it without adding interest. Then continue to split the cash flow moving forward. She would get a monthly payment throughout the whole process and you would also get paid. 

Unless you are planning on using this property as a source of income right away you could also consider paying her off with 100% of the cash-flow unit your debt to her is paid off, then you wouldn't necessarily need to refi, unless you wanted to pull money out to reinvest. Once she is paid off the cash flow is all yours and your P&I payment wont increase because of a higher loan after the refi.

It would be nice to no some of the figures . Rental income, property value, rehab cost (amount borrowed from your mother).

Not sure how much this helped! Good luck