I Want to Borrow $100,000 From My Father-in-Law to Buy a Rental Property

Brought to you by the EveryDollar app. Start budgeting for free today. My wife and I are looking at taking a $100,000 loan from my father to buy an eight-unit rental property. I just kind of wanted to see what you guys thought based on the details of the property and everything else. Yeah, let's hear it because not super excited about this. Yeah, give me your numbers. What are you thinking? Okay, so I got a $900,000 property at 3% interest, owner finance, and so it's going to be $100,000 of my money, a $100,000 loan from my dad, and then the owner is willing to do $100,000 of in-kind money is what she calls it, and that includes repairs and improvements on the property for a period of 10 years, and then she's also willing to mentor my wife and I for two years, the first two years that we own the home, and then at the end of the 10 years, it's going to be a balloon payment, and I know this kind of goes against a lot of the Dave Ramsey, I guess, principles, but I wanted to see what you guys thought because I think it might be a good opportunity for us to get a business and start moving that way. Do you guys own a home currently, a primary home? Yes, we do own a home currently, and we have no debts or payments at all besides that house. Oh, besides the house. What's left on that mortgage? $190,000. Okay, and what's your household income? We make around $135,000, and there's a lot of room for growth there. Cool. How did this idea come up of the eight unit and then your dad loaning you the money? Who brought it up? So we met this woman at a graduation, and we had owned a single-family home investment property, and we got to talking to her, and I kind of told her that we're real estate investors, and she's like, oh, well, I got a deal for you. My husband and I are trying to get out of this property because her husband is pretty sick, and they're just trying to move down to Arizona, and so that's kind of how this got brought up, and then she is the one that kind of structured this deal. Sounds like it. So she knows your dad and was like, well, if he ponies up $100, you pony up $100, we can make this work. And I'll mentor you for two years from Arizona. Yeah, she's kind of curtail related to my wife, not by blood or anything. Matthew, I just see 85 ways this could go sideways. 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So I have $100,000 for the down, and then we have about $250,000 in the markets right now. Okay. Why do you have to borrow money from your dad? Take your money out if you're going to do the deal. I wouldn't do the deal, but don't borrow money from your dad. You have $350,000. Okay. Got it. And I don't know. I guess my thought is if I could keep it in the markets and make 10%, whereas I could pay my dad back 10% on the money that he loaned the company. I mean, you're needing the stars to align with this. You need eight tenants who pay on time with no risk there. You need to pay dad back. You need to make money in the markets. There are so many variables here that could go wrong. If all of this just tanks, you're screwed, right? If the market tanks, you're screwed. If you can't find renters, you're screwed. If the market goes down, as Dave always says, if Trump burps and the market goes down- It literally happened. He was like, we're going to invade Greenland. The stock market got spooked. That's right. Yeah. And so you just don't know. Yeah. But here's the parameters that are underlying. I'd pick off your house, Matthew. Yeah. The underlying principles are we never recommend you buy investment property until your primary home is paid off. Number two, we never recommend you borrow to invest in a rental property. Always recommend paying cash. Number three, we always tell people never borrow money from family. And so there's a lot of principles here that are being violated all for the sake of a quote, unquote, good opportunity. And I'm going to say this, Matthew, and I don't want it to be rude, but you guys had one single residential investment property, correct? You and your wife? That is correct. And you tell this lady that you're real estate investors, which I guess technically you are. You have one investment property. And I think she saw ding, ding, ding. Here's my ticket out. I got to get out of this horrible situation I'm in because my husband's sick. And again, I don't think it's like ill will on her end. I just think she thought, oh my gosh, here's a guy who's probably doing all these deals that you see on TikTok. And he's got eight VRBOs in here. You know what I mean? And he'll do it. I bet I could offer him this and we'll structure the loan where it works for him so I can get out of here. That's what she saw. I mean, honestly, she didn't list it. She didn't go and go to some investment firm that has 18 different investors around the country that go and buy property. You know what I mean? No, no, no. She found you and your wife. And you thought you hit a great deal. And you hit a horrible deal. Not good. OK. Thank you. I appreciate the advice. Not what you wanted to hear, I know. Sorry, Matthew. So listen, what you and your wife did, though, with, I would pay off your house, but I'm all about, I think having investment properties is amazing. My husband and I do. My family, I mean, I think it is great. You just have to start slow. Like the first one Winston and I got, this was, gosh, probably 10 years ago. It was a short sale condo in this kind of like sketchy part of Nashville. But we did it. But we got a deal. We saved up. You know, we bought it for really not a lot. Had to go do a lot of work in it. We sold it probably, gosh, seven years later when Nashville was on. And it was amazing. I was like, this is great, right? Like you have to start slow. Start small. Don't start with a million dollar eight unit property because you're about to take on all those people. Like that's going to be a huge headache. Like get some things under your belt, start small, and then start to work your way up, which is not as flashy, not as exciting, but it is peace. That is a peaceful way to do this. And not create chaos because you guys are setting yourself up from chaos. And maybe to ruin a relationship with your dad if this goes bad too. I've rarely seen it where they go, yeah, borrowed money from dad. It worked out perfectly. Paid him back and he was happy. I was happy. Usually it becomes, well, dad wants a piece of the pie now. He wants his money back because he needs to retire. That's it, yes. Which means I need to sell the property. Oh, and he wants appreciation. And so he wants that too on top of his $100,000, on top of interest. And it just always ruins family dynamics. Yeah, or he gets sick. And he needs $100,000 back, you know? And I don't know. There's just a lot, a lot of things. So I would hold off and just go slow. And it's not exciting. I want to know, what is the $250,000 invested for? What is that earmarked for? What exactly do you mean by that? What am I saving that for? Yeah, you said you had $250,000 in the markets. I'm guessing that's not a retirement, just in a brokerage account? Yes, it's a mix of IRAs and then just the personal brokerage account. And that's just saving for retirement. It's kind of what I've been doing and kind of learning to trade it on my own and with the help from a financial investor and stuff. Okay. I was going to say, if you have liquid money that is really earmarked for nothing, and you want to take it and throw it at the house, the non-retirement portion, you could do that and speed up the process. Free up a mortgage payment, and then you can stack cash fast. And you guys are amazing savers. So then, yeah, stack up some cash and get $300,000 here. Save that over the next five years or whatever your income is, and then go buy a rental property with cash. And that's it. You know what I mean? You can do this, slow walking it, but do it in the right order. Pay off the house. If you have the money, I would pay off your primary home. And yeah, I'd stay away from this. The key is reducing risk. And right now, we're just adding more and more and more risk. And your first real investment property to be a $900,000 eight unit just feels like we're biting off a lot here. For the purposes of helping this woman move with her ailing husband. Yeah. I mean, eight different families, eight different situations. I mean, that's a part-time job right there of what you just signed up for as a landlord. So there's not passive income. It's a lot of work, a lot of work. Create your free every dollar budget today. The simplest way to budget for your life.