Options to payback investors

[Stan Thomas]

Hey Guys,

New to bigger pockets, new to real estate investing. Apologies if I dont use all the terminology correctly but looking for some advice. My friend and I have a 50/50 partnership in our LLC and we are pursuing cash-flowing multihome deals. We have a property that currently doing well and we posted online we got a lot of interest from our friends who would like to do something similar in a passive manor with us managing the property. All in we got about 150-300K that we could raise if the right deal came long. Without going the full on syndication route ( that opens up a whole can of worms with the SEC), how can I use their money to buy our LLC more properties while adequately making it lucrative for these individuals in terms of a return. Below is the only Idea i have, and I honestly dont know the legalities of this option and if this is too close to syndication. If there are other options let me know. PS. I want to limit the equity in the property to just me and my partner. I would pay off these individuals w/ interest.

1.) Giving these guys 10-12% interest on there loan and then paying them off in 2 years through a refi, then me and my partner would keep the property no strings attached. Is this possible? What other options?

[Erik W.]

@Stan Thomas, welcome to BP.

First off, some clarification.  You said, "we have 150/300K we could raise."  Is that just you and your partner, or does it include all your friends who are expressing interest in these deals combined?

Can you and a partner buy a multi-family (2 - 4 units), refinance it, and pay off your investor friends in 2 years?  Absolutely.  Happens all the time.  That said, I want you to be very cautious on your first deal.  You are new enough where you don't know what you don't know yet, and if you're going to be taking other people's money and investing it, you need to know what can go wrong to torpedo deals that look "Great" on paper and when interest rates are rock bottom, which is where we are today.  Prices are soaring.  They will come down, eventually.  The worst time to have dropping prices is when you're trying to refinance something.  You may pencil out having 20-30% equity after 2 years, and the economy might decide to drop on your plan and put you are NEGATIVE 10% equity, which means your plans to refinance will not work.

12% or not...people want their money back when it's promised.  Do not, I repeat, do NOT promise something and then fail to deliver on your first deal.  It will determine whether or not anyone ever trusts you again.

Maybe your acquaintances are more trusting than I am, but I wouldn't give over tens of thousands of dollars regardless of what interest rate was promised if the person asking for it had never done a deal before. I recommend you and your partner doing your first deal together, even if it has to be something much smaller like a SFH. Learn the ropes, get a solid deal under your belts, then start asking other people to trust you with their money.