Using OPM to purchase our first property

Using OPM to purchase our first property

We found a great deal the other day that we wanted to move on. Our first reaction was "we can scrape up the $10,000 we need for a down payment on this property from our savings accounts." Then, after the smoke setteled, I realized what we had done and I was very dissapointed with myself. We got so excited about finding our first property that we wanted to make the move right now, instead of taking a step back and thinking how could we use other people's money to buy this for us... We came up with the plan of finding investors (family, friends, etc.) to invest a minimum of $5000 with us to be repaid over a period of 3 years at 10% interest. Stocks and bond funds on the good side pay 6 to 7% in today's market. So we thought this would be a great way to attract potential investors.

My question now is what kind of a contract would I need between ourselves and the investors? Should the contract be backed by a percentage of the property purchase price, should we create a "general partnership agreement". What about having the contract notarized? Maybe just a good old fashion hand shake would suffice. I am thinking all we would need might be just a promissary note secured by the property some how. If anybody has been down this road before any information you might have would be extremely helpful.

Thanks in advance,

Eric and Kelly

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The Whild Companies LLC


Using OPM, OPR and OPT

Hi Eric & Kelly, I am new to DG but have on occasion lent money to people. Depending on the number of people (friends/family) who contribute to funding, for each you would have to have a promissory note (notarized) with collateral. The best would be if the friends/family formed an association of some kind (LLC) contributed the money to the association and now the association would lend the money to you with you providing collateral. There are tax implications involved on the interest earned but there are also benefits when providing funding. Please contact a CPA who is knowlegable on Tax Strategies and also contact a business lawyer who can assist in the formation of the association. There is also the benefit that the interest you pay is regarded as an operating expense which means that you can deduct that on your IRS returns.
Best regards and good luck, Fanie
P.S. Don't forget to research IRS.GOV for the 1099 INT (interest) reporting requirments for your friends.

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The greatest force on Earth, compounding interest. - Albert Einstein


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