Many of my students ask if they should try to raise private money with their family and friends. It is a natural place to start. And in many cases it does not make sense, but if you have the opportunity and if done correctly can be great way to get some initial seed money to start your real estate investing business.
Many investors tell me, "My friends and family don't have the money to invest". It's still the best place to start because most investors underestimate the money their friends and family may have.
The biggest mistake most people make is simply not asking and "assuming" they do not have any money. But to most people surprise when they ask and present their real estate investing business and potential 9% to 15% returns suddenly people mention thy could be interested.
It is very important that a real estate investor that uses family or friends as investors do the same things you would do with outside investors. Do not cut corners. Be sure to prepare documents and both parties review and ultimately sign the documents.
DO NOT UNDER ANY CIRCUMSTANCE HAVE VERBAL AGREEMENTS.
Be sure to have an attorney or local title company record the mortgage to provide the lenders position if something went wrong. Again do cut corners here to save a few bucks and have problems down the road.
Once the loan is started it is very important that you make the payments on time and in the required amounts. Do start asking if you can delay or defer payments to cover other expenses. This is unprofessional and you should treat your family and friends as professional as possible so you develop a high level of credibility.
If done right using family and friends can be great place to start getting money for your real state investing business. It allows you to get a couple deals under your belt and develop credibility to use in the future to get other private investors.