All Forum Posts by: Beth Johnson

Since you are borrowing funds for down payment, I would not recommend a DSCR loan as mentioned in other comments. The issue with most, if not all, DSCR loan products is that they come with a stiff prepayment penalty that usually has a 5-year step-down. This means if you try and refinance out of it after a year, you will still be subject to four more years of some sort of penalty. So, even if your property appreciates over the next two years, you will have to pay a penalty to refinance out of the original loan to cash out and pay your stepdad back or pull-out equity to buy another property, too.

I also recommend treating this loan with your stepdad as a true business arrangement, should you choose to move forward. Involve an attorney to draft up the Promissory Note so that everything is in writing and done legally. There is simply too much at risk relationship-wise to not treat this as a business transaction. Involving an attorney to create the legally enforceable documents removes all the assumptions and variables associated with "knowing" someone on a personal level and not professional. I don't ever want to risk losing my seat at the table but losing my seat at the dining table would be the absolute worst to me. Proceed carefully so that you both don't get caught up in personal interpretations and can always refer back to the legal document you signed as the source of truth. You know what happens when people assume...

Reach out to Merchants Mortgage. Bob Thomas is a great HML to work with and an investor based in the Portland area, though Merchants is regional and headquartered in CO.

Another vote for Julie Tangerman and her team at Capital Title. They can execute double closings and do not have a cap on assignment fees. 

@Jay Hinrichs Hmmmm... :)

Check out Cody Davis's BP podcast #554 all about creative seller financing deals. Also, if you want to learn more about how to persuade sellers to finance your deals, you may want to check out BP's latest book Lend to Live which provides practical and actionable information on how to be the "other person" in OPM. Since seller financing is truly private money lending, being able to display acumen on the subject of private lending from the seller's POV would be useful as most sellers have never been the bank before and may be apprehensive in doing a deal this way because they don't know how to do it safely and the right way without getting burned. As the buyer, if you can educate the seller and show them you care about how to protect their capital investment in you, then it might go a long way in getting them to agree with the terms. 

As Ian mentions, if you do a seller-financing deal with your parents, they will be on title as a lienholder and not a vested owner. This would require them selling the property to you and then having legal paperwork drawn up with them as the creditor and you as the 100% owner of the property. Sounds like they would want a loan that is principal and interest so that they receive their money sooner rather than later. If they structured it with a high principal payment and a low interest rate, this would allow you to pay down the loan quicker and still cashflow when you want to rent it out. 

Another avenue not discussed in finding OPM is to better understand how to set up and safeguard the other person's money. Learning how to be the private lender, as an active investor, not only helps to educate you in real estate investing, but it also builds acumen around the financing part of it from the point of view of the lender. As others have mentioned, experienced private lenders may not want to take a chance on someone new to the game, but less experienced or new private lenders may want to take a chance IF they know you already, if you've got some skin to put in the game, and if you can share with them you understand and care about protecting their capital investment. This isn't simply with a single deed/mortgage recorded and a Promissory Note but also through other due diligence such as title insurance (lender policy), hazard insurance binder with the lender as a loss payee/mortgagee, using an experienced attorney to draft up the legal documents, and closing through a 3rd party and not exchanging money directly without a paper trail. BiggerPockets has a new book out that educates on this subject from the POV of the lender but it's also a good resource for active investors to be able to understand and articulate how to structure OPM deals as well. Good luck! 

I would structure your deal as debt only rather than with an equity share. It's always cleaner and typically cheaper that way! Good luck and Alex gave some great advice and tips!

Just be sure to ask what amount you would need to refinance after the build is complete in order to do the partial reconveyance/release. Otherwise, if you do not know the amount, you could get stuck with bringing some cash to close in order to make the refinance go through. 

If you want to learn how to structure a private money loan with your friends and family, pick up BiggerPockets latest book: Lend to Live: Earn Hassle-Free Passive Income in Real Estate with Private Money Lending. This book teaches you how to find and fund an private money loan from the point of view of the lender. But for active investors seeking private capital, understanding how to present rates and terms and how you could safeguard your investor's capital, will go a long way in building a trusting and lasting relationship with your capital partners! Hope this helps!