Borrowing money from family member instead of from a bank to purchase real estate-need ideas/advice

[jjj70095]

I am looking to buy a condo in Chicago (the unit is in my condo building and the unit is the unit next to my current condo, I eventually want to tear down the wall and make my current condo larger, which has been done by other owner in my building). Assuming the owner of the unit next to me wants to sell for say $150k,

I need to finance it with a mortgage. I can borrow against my condo and get the money for 30 years with no problem, but rate would be 5.75 percent or higher.

My brother, has $150k he is willing to give me or loan to me, and I would pay him back interest of 3 percent instead of paying the bank 5.75 percent. Any ideas on how to do this? I would not want him to buy the unit in his name, as I may have a problem tearing down the wall between the units, as I do not own the unit of the wall I am tearing down. I want both units in my name.

Making payments is not an issue, as I am on a pension. I also have the money to buy the unit outright from proceeds in an IRA, but can not get at the IRA money until 5 years at age 59. Thus I could pay back my brother most of the amount in 5 years if I wanted to.

 

[whitedust]

Only advice I can give if getting a standard 30 year mortgage better do it ASAP FED talking 3/4 basis point hike next time. Probably put mortgages at 6% maybe more.

 

[mrbb]

borrowing money from family ( or friends) can be good or bad, and can change direction at the drop of a dime,
I personally don;t think its ever a good idea unless its a very short term loan and can be paid back FAST before hard feeling happen.
a lot maybe comes down to how well off the person loaning is, and how close you are,
if doing so, I'd make sure there was some form of legal document drawn up, stating all the small details, on WHAT IF"S included, so, both of you know what the risks are! a well as the payment details and likes.

money has a way of destroying relationships more times than it doesn't , so its a gamble, only you and him can decide if its worth it or not to do! IMO,

 

[jjj70095]

I have borrowed from him in the past, smaller amounts 10k-30k, and paid back with no issues. We did have written agreements. The issue here is we are looking at 150k.

What is good is that he is in my will as my sole beneficiary, so if he lends me the money and I die, he gets the condo......So there is the security he would need to lend me the money......i am thinking of an interest only loan, where i pay him 3 percent, and he receives his 150k back plus the appreciation on the condo when i pass.......I take care of condo assessment and the taxes....it would be a great investment for him of his 150k.....he receives 3 percent interest per year, plus appreciation in the condo property without having to pay assessments and taxes

 

[G]

Couple of things. What kind of ownership allows you to tear down walls and change configurations of condo units? Never heard of that before. Second thing never borrow from close family. Never. 3 percent on 150000 not worth potential destruction of relationship. Too many things can go wrong. Might look good today but things change over time. For both parties. Especially in today's money environment. This is what banks are for. nice impersonal relationships.

 

[jjj70095]

My condo building does allow the tearing down of walls in contiguous units. I know several people in the building (it is a downtown high rise consisting of one bedroom and studio units) who have done it. I own a corner one bedroom, and the unit next to me is a studio unit. One person i know even tore down the wall between units for a couple of years. Then just last year, replaced the wall again and sold the studio unit separately.

Why would anyone pay a bank on a mortgage at 6 percent when the IRS allows family mortgages at 3 percent (as of June)?
The lending family member can foreclose on the borrower if they stop payments, just like a bank would.....repayment is not a problem....
Interest is deductable for the borrower and the lender declares the interest as income each year on the payments.

 

[Go Fast or Go Home]

When it comes to money--You don't have any friends or family.

Don~

 

[pclark]

It sounds like you have a very good relationship with your brother and have borrowed and paid him back in the past. That is rare, but if it works between the two of you and you have written documents so be it. I would never borrow money or lend money to family members, period but that is just my experience.

 

[hybrid]

My condo building does allow the tearing down of walls in contiguous units. I know several people in the building (it is a downtown high rise consisting of one bedroom and studio units) who have done it. I own a corner one bedroom, and the unit next to me is a studio unit. One person i know even tore down the wall between units for a couple of years. Then just last year, replaced the wall again and sold the studio unit separately.

Why would anyone pay a bank on a mortgage at 6 percent when the IRS allows family mortgages at 3 percent (as of June)?
The lending family member can foreclose on the borrower if they stop payments, just like a bank would.....repayment is not a problem....
Interest is deductable for the borrower and the lender declares the interest as income each year on the payments.

i say go to the bank
not worth the risk of screwing up a relationship
also it seems like u have ur decision already made
not sure why ur asking here ?
you would be way better off getting the heck out of that screwed up city
sell now and get out before u get shot

 

[moose822]

Another way to look at this if you are a numbers person is: Are you willing to risk your relationship with your brother for $4125.00 per year? I don't know how close you are with him but if he is in your will I would assume you are pretty close. To me personally 4,125.00 per year isn't work the risk.

 

[ICT Sledder]

Your brother and you can file private mortgage agreements with your county's register of deeds (or whatever that office might be labeled in your city/state). That's a thing. The deed would officially be encumbered no differently than if you had a mortgage with a bank or mortgage brokerage. You'd probably want to spend a few hundred with a real estate attorney rather than figuring it out on your own, but it is sure an option.

Congrats on apparently being retired at 54. Wow.

 

[jjj70095]

Yes, filing a deed of trust would protect him and allow him to foreclose against me if I do not make the payments to him. The other issue is when we show the interest income for him, (and it would be tax deductable on my end , since I itemize taxes due to my properties I own).

Does the IRS just "trust" us with the yearly numbers we provide on our tax returns? There is no 1099 or 1098 official tax forms, that we get using a normal bank mortgage......probably have to find a good real estate attorney who maybe has done this in the past....which is one of the reasons why i posted my questions to this site....

Again, this is not a sure thing at all, I am just trying to get any and all input from people.......