I am very new to the Reiclub forum and also fairly new to investing. I am a Realtor and have a good opportunity to buy my first fix and flip.
Question:
My parents will be financing the deal. What is the best way to handle the money? I will be buying the property with cash. Should we open up a joint account? Or would it be better if I just open up a separate account on my own?
My parents do not care how we do it. I just want the deal to go smoothly.
Thank you,
Evan Arellano
Well the first thing is that this isn’t a hard money lending situation. But if you are going to be involved with family you definitely need something better than ‘they don’t care.’. You are going to be much better off if you draw it up as a loan agreement between them and you. The benefit I believe in this strategy is that if it goes bad it can be forgiven by the loan holder. Of course I am not able to give you legal advice.
There are a lot of questions to be answered. Is it a standard loan? A partnership where the work is split? Is it an equity investment? When dealing with family you want to sit down and really talk it out before you get involved because it can become a headache and then you could start developing resentment towards the investment instead of having it as a positive experience.
Good advice. We have all the specifics on the loan figured out. I am more concerned on when I am ready to purchase the property and when I am at the closing table and they see the check/cashier’s check in my parents name and not mine. Will that be an issue? How about if they transfer all the money into my account will I than have an issue with the IRS?
Evan Arellano
As a Realtor, you should be aware of the different requirements that mortgage companies have at the closing table. But FWIW: I’ve found the mortgage companies freak out when the funds are not coming from me, or at least an account that has my name on it. This usually comes up when showing proof of funds to the seller first.
FWIW: I would recommend that you find a reputable title company to service the loan. This will assure your parents that you have a mediator between you and them if things go bad.
If you have an LLC, your escrow comany will handle and disburse funds as needed for your deals. Therefore taking the headache making sense of it all. Let the reputable escrow and title company to do that for you.
It is really nice to have very supportive parents who trusts you enough regarding the deal. But you’ve got a great challenge there since you have to prove atleast to yourself that you can have the deal smoothly. I think it would be best if you have a separate account for the deals that you’ll be doing and treating it as a business.
Evan,
Will the property be titled in your name or parents?
If your name, then you will need funds in an account with your name (they can even be joint account owners).
Cashiers check should have your name or title holders.
You can then file the lien-loan/mortgage doc after the fact with the county if you care to.
You should clearly in writing communicate expected repayment/payoff plan/profit split that details a plan A & plan B if you need to turn it into a rental.
Also