Lending money to an investor

Sorry if this has been covered before but I wasn’t even sure of what terms to use in a search.
Anyway, I have an accepted offer to purchase a house that I would then rent out. I have all my financing in place through the bank. During a visit this past weekend my father-in-law indicated that he would like to lend us the money plus he would give us slightly more favorable terms. I am willing to pursue this but neither he nor I have any clue as to what requirements are needed for him to act as the bank. Are there any special procedures/processes/paperwork that he needs to have in place? As the borrower am I still required to have a 20-25% down payment? Or is he free to pretty much determine what he will accept?

Thanks for any input you may provide.

he can do whatever he wants as far as downpayment, etc, as far as paperwork, get a Real Estate attorney to draw it up, or you can use a title company and they will have thier lawyer draw it up, you simple tell them what terms he wants to give

This sounds rather easy and straight forward then…Almost too simple. I’m looking forward to saving on all the underwriting fees, etc…
Thanks for the resopnse.

Wow, this is good fortune for you indeed, a FIL who will give you BETTER terms than the bank?? Private lenders usually charge 2-3 percent more than a bank.

That said, you better make sure this deal work out, or there could be, shall we say, disharmony at Thanksgiving! If you try to go with a small downpayment, you may have very little cash flow, and not much wiggle room should anything adverse happen with the tenant or property. Personally, I think 15-20% should be the minimum you put into the deal. I also like to see a ratio of Gross Rent to P&I payment of 3.50 or more. This should give you a comfortable cash flow cushion. You should also buy title insurance to at least protect his loan amount.

Not that this matters, but my FIL (as you abbreviated) built a small fortune by owning/managing three apartment buildings in the past. He has the means (and apparantly the desire) to support this venture. He states that he wants to help out his daughter and son-in-law. I won’t argue with his reasoning if he wants to accept lower rates than the bank. FWIW, this will be my 3rd investment property, so although I am not the seasoned professional I am not a complete noob either. My guess is that he sees us making an effort. I don’t see my FIL offering this assitance to my wife’s siblings as they do not appear to have any motivation.

I like your ratio of 3.5 for gross rent to P&I. Even if I put nothing down on this deal I will be looking at a ratio of 3.3. I am looking at a good deal with bank financing and an even sweeter deal with FIL financing.

Hey Matt. I’m in Florida and I’m looking for hard money on a approval I have from a bank let me know if interested.

Have the normal loan agreement/note recorded as you would with any bank mortgage. Make sure that the interest rate is not too low that you raise problems with the IRS in that they see this as a gift rather than a valid loan/mortgage. Google AFR or applicable federal rates for more info on this.

If you come across any private lenders who charge 2-3% more than what a bank charges please feel free to PM me. Thanks and take care.



That is great! Your FIL is an “Angel Investor”! Remember that his involvement is based solely on his interest for financial security for his daughter. He has experience in REI and can see two things. #1, The deal you are doing IS a good investment and more importantly, #2 you have saved your own hard earned cash and are willing to have skin in the game. Additionally, you proved that you could do this without him. That is huge! Good luck!!


This appears to be rather uncomplicated then…Almost too simple. I’m awaiting keeping on all the underwriting charges, etc…
Thanks for the response.

my mother, 81, has money in CDs and is getting virtually nothing in interest,I use hard money to purchase, then convert to conventional, my brother and I were doing a deal together, and used my mother has a hard money lender, very easy to do, and we save a ton on fees,we paid her 1 point and 10% interest,she made more in one month than she would in a year in a CD right now,great for everyone

Is your mom willing to invest in Houston Real estate?

she’s not in the hard money business, just for family,but if you know someone that has cash in interest bearing accounts, its a great opportunity for both parties