When I talked to my grandfather the other day about my new real estate opportunity, he offered to loan me the money for the downpayment again, just as he did last summer when I bought a similar duplex.
According to CNNMoney, "In the U.S., about $45 billion of parent-child loans are extended every year, and that borrowing - used for everything from paying down student loans and credit-card debt to funding a new business, is sure to grow" now that the economy is weakening. (Thanks to FinancialFYI for the link).
I had no idea that intrafamily loans were so prevalent. I'm sure there are many more that go unreported and undocumented. Regardless, it is an incredibly generous offer without which I might have just walked away from this investment rather than put down nearly a third of my personal liquidity for it. He wanted me to jump "while the skillet is hot," though, and assured me we would do whatever was needed to make it work.
I think his enthusiasm and generosity with regard to my real estate investing is partly the result of his swelling pride tinged with what might be called sexism by some. While he regularly says how proud of all of us he is, I know he is particularly happy (and perhaps relieved) that I am interested in investing and saving, especially at such a young age. He has been lending my uncles and my father money to buy real estate and start businesses for decades - but never has one of his grandchildren or daughters or daughters-in-law expressed interest in such matters.
When accepting such loans, however, it is important to make sure of a few things in my opinion:
- The lender can completely afford it without sacrificing any of their own goals or needs.
- The lender genuinely wants to loan the money and is not doing so out of guilt or pressure or force.
- The money will go towards something the lender approves of and values.
- You agree on and stick to fair terms which include paying interest and repaying the full loan within a reasonable amount of time.
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