Family wants in on investing

[Kyle Perry]

I am extremely new to investing. Currently have 1 rental that I purchased in May. I just found a duplex that I would like to place an offer on for a buy and hold. I currently have the funds to do this myself However a family member wants to get in on investing as well. I guess my question is, if they fund some of the deal what strategies would you use for them to profit from this deal. Such as a percentage of the monthly income or how else would they profit?? Sorry hopefully this question was not too confusing. Look forward to hearing hour suggestions

[JD Martin]

If I was using a family member for funding, I would pay them some fixed return annually and they would be nothing but a source of funds, just like a bank. This removes 99% of the friction that's going to arise if they become your 'partner' in the deal. IE If they wanted to invest $10k, I might agree to pay them 8-10% once annually, or something a bit lower semi-annually, etc. And have some kind of written out - i.e. they agree to invest $10k for 5 years at 8% annual, and then can cash out any time after that with some kind of notice (3 months, 6 months, 1 year, etc). 

In this fashion they get their return, and you get to run your property however you see fit. I know a lot of investors wouldn't want to go this route because they want to hedge their bets ("What if I don't make much money, then I'll still have to pay them interest!"), but in my opinion you should treat investor funds no differently than you'd treat the bank's money. If you borrowed $10k from the bank to do the work, you don't get to not pay the interest because it was a tough year.