Friend as HML - it’s about business

[Jeremy Houser]

Hello BiggerPockets friends. I found a quadplex that I would like to purchase. I actually lived in one of the units previously and it’s in a great location. Well, I was telling one of my best friends (former NFL player) that I was going to look at the property. He asked if he could get in on the deal, but he doesn’t want to be a landlord. He just want to provide the capital and gain interest of course. This is the deal i proposed (copied and pasted):

‘’You give me $135k, to pay for property and rehab. We make a contract that I give you $1k/month during rehab, after renovations I do a home equity line of credit or/refinance, pay you back at 12% interest. 12% would be $151,200 + the $1k/month. So essentially the $1k/month is a monthly retainer fee for loaning me money. It motivates me to get renovations done and pay you back ASAP. I expect to get $600-700/month for each unit. Which is $2400-$2800/month.”

We agreed that if this deal is successful any future deal would be 10% plus a $500 dollar retainer. Again, I came up with the numbers because I wanted to leave friendship aside. He is going to make an LLC for tax and legal purposes. So essentially he is a HML. I just want your thoughts and opinions regarding these terms. Just wanted to make sure it's a win-win situation. I have looked at the number extensively but my only concern is what if the after renovation appraisal is lower than expected.

Pleas share your thoughts.