Real Estate Investor · Lake Forest, CA · Member since 2015 · 17 posts · 8 votes
I was recently approached by an acquaintance that is selling his out of state commercial property (in escrow now) and looking to lend some proceeds at 10-12% to someone like me looking to reposition either SFR or redevelop a SFR on high density zoning to MF property, rent out and sell as asset.
My million dollar question: how do I structure a deal that gives the investor security (and his 10-12%) but allows me to capture net proceeds on the final sale?
Assumptions:
$600000 purchase price
$150,000 Rehap cost
$940,000 Projected ARV
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
11y
Perhaps you should look into having him be your private lender. You would essentially negotiate a Promissory Note at his requested interest rate, secured by the house. Talk to a lawyer about drawing up legally binding documents. This gets him his guaranteed return and allows you to take everything that's left.
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
11y
Perhaps you should look into having him be your private lender. You would essentially negotiate a Promissory Note at his requested interest rate, secured by the house. Talk to a lawyer about drawing up legally binding documents. This gets him his guaranteed return and allows you to take everything that's left.
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
11y
Sounds like a great opportunity Jason, if you give him a first trust deed in real property you may be able to avoid security laws in the event things go south but no legal advice given.
I just mention that because it sounds like hes going to be a passive investor relying on your best efforts to achieve 10-12% returns.
Is this going to be a SFR (your assumptions + projections) ?
Real Estate Investor · Lake Forest, CA · Member since 2015 · 17 posts · 8 votes
11y
Doing some quick math, going with a 12% promissory note or forming a 50/50 LLC would net me nearly the same proceeds either way I go. Guess it comes down to exposure and liability, thanks for the tip @Albert Bui
@Brooks Rembert has a good point, especially if ARV or contingency rehab costs change/increase while on the project. In this case I'd rather share the owner responsibility. However, I get the sense this guys is an active-investor, the type that wants his wife to pick out the carpet and paint colors (as she knows best) and the type of investor that could slow/delay a project down so he can approve all the materials/subs, etc, etc.
You've all given me a lot more to think about, thanks for the feedback.