Family and Friends interested in investing into company!!

[Nick Zinner]

Hey Bigger Pockets Community,

Recently I had some friends and family members approach me on investing into my REI LLC. Long story short, friend A wants to invest $10k into my business, family member B wants to invest $15k, and so on. Neither need the money back ASAP, they understand the rehab and flip process. Obviously they would want a return on their money for the time it is loaned, and they understand that the ROI would be based on the profit of the flip. So the terms I have discussed with them are understood and accepted. So no need for discussion there.

What I am getting at is, how do I legally obtain their money into my LLC to use as money for my business needs? (House flipping) I am sure it is much more difficult than me taking a check from them, depositing it, and using it to my disposal.

In other words, it is almost as if they are giving me start up money for my company. How do I legally go about this without them being involved in the company, for example, part owner of the company, on the title of houses, etc.

Also, no need to hear the whole "Don't do business with friends pitch." LOL.

Thanks for your time everyone! Have a great day and good luck on your next deal.

Nick

[Brian Burke]

@Nick Zinner, to document a loan you need a note. The note says that A borrowed $X from B at an interest rate of Y%.  And A will pay B $Z per month (or quarter, or year or whatever the payment periods are to be) as principal and interest (or interest only) and that the remaining balance is due in full on a specific date unless the payments will fully amortize the loan.

At the end of the year you send them a 1099 reporting the interest paid that year just like a bank does for interest earned in a savings account, and the lender reports that as interest income.

That's the simplistic "non legal advice" version. You do need to have an attorney help you with this to ensure that you don't mistakes.  Pay specific attention to the securities laws...they can come into play in this situation so you'll need your counsel's advice on how to handle that.