How Do I Write a Proposal to a Private Lender?

Question

Hi,

I'm very excited and very new to real estate investing. I have been learning a lot over the past couple months and in talking to a coworker I learned that she has some money she wants to invest in real estate. I'm planning to have lunch with her Wednesday to get a better understanding of what she wants and what I can provide.

At this point do I create some sort of "real estate proposal" to hash out what I can do for her or what markets I think we can get good ROI on her investment? How upfront should I be when trying to "close this deal"? I'm a terrible liar and don't want to want to mess up our friendship.

My plan is to use her money for down payment and closing cost (where applicable) and then split the cash flow 50/50. Is that a fair deal? I suspect that I will do all the heavy lifting in this venture. Thanks for any help and insight.

Danielle Jackson · Answer

What is your investment strategy? Buy and hold? That will certainly play a factor in the economics. Also, it sounds like she is taking all the risk given its 100% her capital, so I'm sure she will want that factored in to whatever split you agree to.

Dakota Rholetter · Answer

Hello @Marc Ferguson,

Congratulations on your start in investing in Real Estate!

The best advice I can give here is to Not Lie At All. It's probably a good thing you aren't a good liar, that is not the best idea when speaking to a private lender. This is due to: if you have to lie to them about numbers to get the deal, the deal doesn't make sense to begin with, you can lie to your lender but the numbers themself provide the real truth.

Continuing on, aside from that, I think a well outlined proposal is an outstanding idea. I am not sure what side of investing you are going into here (Flipping, Wholesaling, Renting) but make sure the numbers make sense before you have lunch with your lender/friend. Bigger Pockets actually has plenty of resources that will calculate your cash flow, outline your potential and create easy to read graphs so that you and your partner can see how much cash flow is really coming out of your investment.

The biggest thing I can say is to have a clear understanding of where each of you stand in this journey. The cash flow split is completely up you, however, make sure it makes sense with what each of you bring to the table. Furthermore, when it gets closer to time to close, have everything in writing and go through all the right steps even though you are friends. At the end of the day Business is Business and Pleasure is Pleasure: Keep them as separate as possible.

Good Luck on your Journey Marc, I wish you the best of luck and plenty of cash flow!

-Your Friend, -Dakota

Cameron Braig · Answer

@Dakota Rholetter

Thanks for the thoughtful post, well said.

Marc Ferguson · Answer

Things went well with this meeting. Not sure I have the right terms. This person I talked to has money to invest, like $20,000. So; she's not a hard-money lender. Is it more like a private investor/partner? Either way; I showed her my proposal and it was helpful for her to see the two comps (very light) I put in there. She's super interested. I'm going to link the document. I'd love some feedback. It's not the best, but I plan to improve it greatly over the next couple of months.

Overall; this was a great process. Because I had to convince someone of the value in a market I ended up doing research and making calls to realtors and property managers to see if I could get some insight into the city. Me and the investor will probably work together in the future, but it was more beneficial for me because I had some focus and took some action.

Thank you, again, for the posts. I love the support of this community.

https://docs.google.com/document/d/1nm--_00asVbCQ06pIXcM_NCTy46CLo5amUv2pyRgxPQ/edit?usp=drivesdk

Marc Ferguson · Answer

Great idea; I like this option. I didn't think about ownership. I'll need to do some more research, but I want to be as fair as possible. Thank you for your feedback and I'll keep you all posted. This is very exciting.

Danielle Jackson · Answer

Will the mtg be in her name as well? At the end of the day, the terms will have to be whatever she is comfortable with to get the deal done.

You guys could maybe discuss starting it at 60/40 or 65/35 until her capital is returned, and then 50/50? Keep us posted on how your lunch goes!

Marc Ferguson · Answer

My strategy is to buy and hold in order to collect rental income. Are there other aspects I'm missing? I plan to look for other comps on the same street, find the lowest value one and try to negotiate the buying price to be lower. I'm not looking to do BRRR. So; whatever minimal fixes to get it rent-ready. I'm looking for a property manager in the area to handle the day-to-day issues from the tenant.

Danielle Jackson · Answer

What type of a strategy are you looking at?

Marc Ferguson · Answer

I completely agree with your assessment @Danielle. She is taking all the risk. Since I'm new I'm not really sure what is a fair divvy of the cash flow? I would love some suggestions. She's providing the capital and I'm managing the deal. The plan is to buy and hold a property for rental income.

Marc Ferguson · Answer

Hey @Dakota Rholetter thanks for the quick response and the solid advice. I appreciate the emphasis you put on telling the truth. My moral compass feels good moving forward. The plan is to rent and I'll gather some more tools and make sure the numbers are good. Thanks again; I really appreciate your feedback and positive support!

How Do I Write a Proposal to a Private Lender?

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