Friend and Family Lending and Vacation Homes on 02/21/2011

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It’s a buyer’s market, and if you’ve been considering purchasing a vacation property or second home, now just might be the time. Whether it’s for personal use, rental income, or both, a second property can have tax benefits, be an added source of income, and prove a good long-term investment.

These days, the vacation and investment property market is not what it once was. That opens the door for some once-in-a-lifetime deals, but it also makes securing financing challenging. That’s one of the reasons many people turn to friend or family lending to partially or fully fund such an investment.

With the boom-time’s lending gusher now tightly capped, and would-be investors on the sidelines with their cash, a private mortgage arranged between family members may be an attractive alternative to a traditional bank mortgage. Another alternative is combining a personal loan from a friend or family member with a traditional loan to finance a second property purchase.

Lending between family and friends does carry an element of risk that traditional loans don’t have: risk to the personal relationship. If you choose a family loan or personal loan from a friend as part of your financing arrangement, you’ll need to learn the fundamentals and create a legally recognized loan agreement. Using a service like makes this easy and helps assure your loan agreement results in a sweet investment, not a bitter feud.

If you have reservations about approaching a family member or friend for a private loan, consider this: Helping to finance a property purchase can be a good investment for your lender, too. Given today’s investment market, if you’re ready to offer an attractive interest rate, your friend or family member may well get a better return investing in you than in traditional investments like stocks and bonds. Plus, if you’re nice, you’ll reserve some time at your killer vacation spot just for them.