Private Money

Private Money

Hypothetical Scenario

Buy a Move in ready House for 50K and the rent allows it to be a positive cash flow. Just for the scenario, you borrowed all 50K from a family member at 5% interest. All perfectly Legal , correct?

But is this scenario Legal......

Buy a Move in ready House for 50K and the rent allows it to be a positive cash flow. For this scenario, you borrowed the 50K from 10 different friends (5K each @ 5% interest)

Is this Legal???

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Coast To Coast Property Investments


Private Money

There's nothing illegal about borrowing from a family member as a personal loan, and then purchasing a property. I would make sure an escrow company or lawyer write up the paperwork to make them feel comfortable about the whole thing.

Pooling money from different people might be a different thing. The Frank Dodd act changed a few things about lending and I would check with a professional. You're sort of becoming a broker and treading on legal grounds. There might be a way to do it, but you need to make sure you are following all the laws.


Agreed

Pooling money would definitely be much more complicated because of the regulations. In addition, because there are 10 people involved, who has the 1st lien?

Good luck!

- Tom


Agreed

Sounds like a question to an attorney, but then again just do to the lien position it may be more trouble than it's worth.

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Pooling money

normally becomes a Securities issue. Exceptions exist but you must know what you are doing.

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But is this scenario

But is this scenario Legal......
Buy a Move in ready House for 50K and the rent allows it to be a positive cash flow. For this scenario, you borrowed the 50K from 10 different friends (5K each @ 5% interest

Of course it's legal, it's done every day. Do you know what rules and regulations you will be subject to in such a transaction? Will you have to register your transaction as a security or will it be exempt? What is involved in writing up a private placement offering? Will it be exempt under state laws or federal laws? Will your investors all be from the same state? Are your investors "accredited" or "sophisticated"? Private lending is a complex scenario. Most people doing it on a small scale don't do it legally for one of two reasons...one, they don't know, or two, they don't care.


Legal? Not sure. Somehow as

Legal? Not sure. Somehow as long as you pay back each of the lenders, I doubt that even if it was slightly illegal (only in the registration and paperwork end) that the US government would chase you down on a $50k transaction.

I would work around it by making each of them a personal loan rather than secure it with the real estate. You can borrow money from anyone you want and as many people as you want. That would not make it illegal in the least.