Financial Structure for Private Lending Deal

[Steve Sorensen]

Hello! I have recently been searching for a mentor prior to making my next investment and I found one, and he's in private equity so he and his friends are pretty wealthy. He's willing to act as a mentor, and he also proposed investing with his friends. He threw out a number of $1.5MM for an investment pool; they first want to do a small SFH deal with the potential to expand up to (and hopefully eventually beyond) that $1.5MM number if the first deal is successful. There will be 3 other investors most likely, so a total of 4 of us will be involved in the partnership.

I'm talking with several people I know to try and paint a complete picture of what this will look like, but I haven't contemplated this amount of money or considered working with a number of investors like this before as I've been funding projects myself...at most I've considered bringing one investor in to split equity and cashflow 50/50 which is very straightforward.

Since I'll now be working with more robust investors, I want to make sure I'm structuring things in a way that will be favorable to all parties. Can I get some general guidance on how I can structure this partnership to work toward my personal goals while providing what these wealthy investors will be looking for?

- Personally, my goal is to replace my current W2 income with real estate income so that I can leave my job and pursue REI full time.

- These investors are already very financially secure so they're not looking for cashflow so much as a solid ROI. They also will want to avoid paying taxes as much as possible (as we all do)

- My expectation is that the investors will each bring, say, $200k to the pool, and my financial contribution will be negligible in comparison; my primary contribution to the investment will be the sweat equity.

- Would it be reasonable to purchase a property with their contributions and keep the cashflow for myself since they're less concerned about cashflow and more concerned with their ROI? In that situation, would it be reasonable for their payoff to be a larger return at the end of the investment period? I was told that they'll likely be looking for 8-10% ROI, not sure if this is compounded annually or if it would be a simple interest calculation...these are some of the nuances I need some direction on.

- What should the length of the investment period be? Will they be expecting periodic disbursements or a lump sum at the end of the period?

- Would I sell each property at the end of the investment period? Would I refinance into a traditional loan after the rehab? In my head, I would like to use the BRRRR model so that I don't use up the entire investment pool with just a few properties, but I'm not sure if that's a realistic way to provide the returns they're looking for. It also seems like it defeats some of the advantages of buying with "cash" since that would involve refinancing into a relatively high interest rate mortgage.

I know there's a lot here, so feel free to answer any of the individual questions or provide any response you see fit. Thanks in advance!