Returning Principle to funding partner/private money lender

[Jacob Thorp]

Hello,

I am trying to research how to structure an agreement with a funding partner. I have found some great resources (https://www.biggerpockets.com/blog/2015/12/03/structuring-partnership-rental-properties/) but none of them discuss returning principle to the lender.

Example:

Managing partner A (me) and funding partner B (them) decide to go in on a multifamily.

$200,000 property 20% down + $10,000 rehab

Funding partner funds all $50,000.

Profits are split 50/50 (monthly cash flow / profits on a sale/refinance)

Sounds simple enough however how do you determine when to sell/refinance? When can you pay out the investor? Can the funding partner tell me he wants his capital, how would I get it out of the property if there isn't enough equity?

What are the common ways to repay private investors their principle? I appreciate any advise! Thank you.

[Jaysen Medhurst]

@Jacob Thorp, you can put in a "hold" period (e.g. 7 years) at which point you agree to dispose of the property or must mutually agree to continue holding it. Should an opportunity to sell/refi prior to that, you must mutually agree to action that opportunity.

So, the equity partner could not retrieve their capital until the holding period expired and the property was disposed of. If there is not enough equity to repay the full $50k at that point, he takes a loss. If there is a profit, typically all of his investment is repaid and then anything over and above is split.