Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
When raising private money, what type of terms do you offer the investor(s)?
For example; if you bought 100K property and got 30% from an investor, and the rest from the bank, does the other investor get 30% of rents, or rents and earnings from exit, etc. or maybe you do 100% private capital, and offer a percentages of the cash flow and payoff the debt before exiting. Why type of terms do most normally offer?
Rental Property Investor · Lindon, UT · Member since 2015 · 862 posts · 438 votes
10y
This totally depends on the deal and the investor. Some investors will fund the whole deal and split the profits 50/50, some will lend 75% of the deal and only want a return on their funds. I think what you are looking for is someone who knows you and trusts you so you can ask them this question!
Keep in mind that both of the scenarios you pose would, typically, require you to bring a (very) good deal to the table. As the only equity partner, they will be looking for something in your deal they cannot find in the others on their desk. They can always find a mediocre or market deal, fund it themselves, and not have to split the return.
Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
10y
@Scott England@Darren Eady, I just wanted to see what others where doing. I don't do them to much, but when I do, I'm asking 30% from partner for 20% cut, or 100% for 50%, or some combo like a percent of cashflow and total capital returned, or capital plus some percent of net equity as they are just cutting a check and enjoying secured cashflow I've developed. Most my deals are well below 80 LTV, case in point, current deal I'm working is 63 LTV, if I had gotten my opening offer we would have been 42 LTV, hardly ever happens, but once in a while it does hit below the 50. Thus why I don't do them much due to bank being more than happy to fund them. Most deals are in the 1.5-2m range.
Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes
10y
It all depends on the investors motivation and what you bring to the table.
My first deal, I partnered with a contractor who found the property, I paid for it (100% cash), he paid for rehab and did the project mgt (about 10-15% of ARV).
Then we rented it for a few months (he did prop mgt) and sold it (I did listing and sale). We split the rent and profits 50%-50%
So, I would break down the process into steps from property acquisition, rehab, property mgt and/or sale and assign appropriate percentages you feel are deserved for each. (e.g. property acquisition 5%, cash for purchase 20%, rehab 10%, property mgt/sale 5%). Use this as sweat equity for your costs and split the rest 50%-50%.