How to compensate private lender....

[Nicole Clemens]

Hello there, I am newer to real estate investing. I've done a few flips and have a few rental properties, but am really interested in learning more about partnerships and how each person involved in the transaction is fairly compensated. I currently have a friend (of a friend) looking to invest a few bucks and would like me to find the property (most likely buy and hold) and do all the work/managing of the property while she provides the money. My question is: Which options should I give her for compensation on her end? Do I want to make her a percentage partner? If so, half? Pay her a fee? If so, how much? Give HER the option? Who's name goes on the deed? Etc.

Sorry. Im sure this has been asked before and I have been digging to find the answers, just havent come up with them yet.

Thanks in advance for your help!

[Kevin Yoo]

Nicole Clemens

1. The interest rate that you should offer is determined by the market. In my market, private money is lent out around 12 to 15%. Some private money will accept as low as 8%, but you don't want your private investor to find out that some other private investors were getting more than you were paying. So, ask around.

2. If I was your private lender even if you pulled out money from the deal with a loan later, I would still ask for 50% for several reasons. You may not get a loan after all. You may need me to qualify for the loan or qualify with you. But you can negotiate all of this. Just offer what is fair. You want them to invest with you again.

3. As for examples, I will share with you what I do and others in BP will do the same. The process is very flexible and you make it what you want. There is no manual. When I have private money in a fix and flip, I offer them 2% per month with guaranteed principal and preferred return. This way their money makes more if I keep it longer. This way their investment is protected (which is easy to do). This way they get paid first before I do. With this setup, my investors are virtually insured of making 24% annualized return.