Commitment from my first private lending partner, now what?

[Nick Stageberg]

I have been looking for some private lending partners to grow my real estate business. I have had a number of people interested, though right now it seems like I have my first real commitment from an investor and a deal to go along with it. The commitment isn’t quite what I was hoping for, and maybe not a great fit for this deal, so I would love some advice on how to best make it work. Even if I end up with something that isn’t ideal for this deal, my ultimate goal is to grow the relationship so that they are willing to invest much more in the future and I can take down much larger deals that I an unable to do right now, say a small apartment complex.

The current deal I have under contract is a duplex in Rochester, MN. Foreclosure. Purchase price is 79k, ARV is maybe 135k, requires about 25k in repairs. I am currently planning on paying for the property and all repairs with cash. This is sort of a bread and butter deal for me where I should be able to buy it, rehab it, rent it, refinance it, and get all of my money back out to do it again.

The partner I am working with is willing to contribute 50k on this deal. I was hoping to partner with them as a private lender, offer them the first and only lienholder position on the property, and expect to pay them back in <12 months once the refi is complete. We never talked about an interest rate or other terms because they are looking for a long-term position in the property. Perhaps something along the lines of: They invest 50k, get paid paid when the property refis, and get x percent of all future cashflow and profit when the property is sold.

I'm not quite sure what to offer them that is fair to both parties and is of any benefit to me. 50k doesn’t really free up enough cash for me to do another deal, and I can do this deal on my own. I’m happy to pay for interest on some extra money as a proof of concept for the partner, but offering them a long term positions seems like an expensive option that I don’t really need. The other big challenge I see is that this deal is so small/cheap, that it seems like the overhead of setting up an entity, taxes, management etc will be a long term burden. If we were talking about a large apartment complex with on-site management and multiple investors it would be another story altogether.

So what do you think?  What would you do with this opportunity?