Pitching friends and family.

[Travis Tannahill]

As mentioned many times on the podcast there are two types of people. Those with time and those with money. I'm one of the ones with time. I'm an insurance agency owner about 9 months in and that's not a get rich quick scheme and has a 2-3 year starvation period. That's totally fine we live off my wifes income.

That makes it hard to put money aside though for a down pay so I'm considering pitching friends and family. I'm fortunate to have a couple dozen friends and family who make well over 200k/yr and a 3-4 that make well over 500k/yr. 

So if you were in their shoes, retirements maxed out and looking to put money someplace, would you take this deal: 

Hypothetical example for easy math: Typical 1% rule single family dwelling with $200/mo cash flow: 
$100,000 Purchase Price
$20,000 Down Pay
I put in $5,000 (25%)
Investors put in $15,000 (75%)
Investors get 100% of profit until their initial investment is paid back. (happens in year 6 @ $200/mo cash flow)
After that, equity and cash returns are split 50/50
I bring the deal, find bank financing, and manage the asset (hire out property management but I deal with the PM)

Conservative numbers (not accounting for rent increase or appreciation) show a 16% return for investors the first 5 or so years when they are getting their initial investment paid back. After that it drops to an 8% cash on cash return (since they are now sharing 50% of the profit with me). When we add equity to the equation, in year 6 the would have a 13% return, slightly improving year after year as the equity gets paid down more and more each year, ending at 26% total return. 

The ideal goal would be to BRRRR a property and pull that equity out as quickly as possible to pay the investors back year 2, but this example is showing a simple buy and hold strategy with no re-fi.

Let me know your thoughts... my initial feeling is I'm being a little greedy and would have a hard time getting someone to do this deal for only 8% cash on cash return long term. But I'm delaying my payday to limit the investors risk and get their initial investment back as soon as possible. 

[Jason D.]

In all honesty, it sounds like a nice deal. The only problem is that it's only a $5000 investment. If I were making $500k per year, making 16% on $5k doesnt excite me. I'd rather make 11% on $100k. I would be looking for something much larger with someone with a lot of experience.