Private money structuring

[Joeseph Bivona]

My partner and I have a very full pipeline of deals coming up now with covid (hopefully) subsiding. We are quite liquid and have been able to fund our first few, but we're now wanting to invest our own capital into building a rental portfolio and collect private money for our flips and new builds. Im asking for minimum investments of 10k and generally approaching young professionals. I'd love to very soon put together large funds to fully fund projects rather than fund our down payments and points, but this is a good place to start I think. 

Originally my plan was to offer a 10% annual return on whatever the principal investment was. While that is a strong return, I dont know that people will exactly jump at the idea, as there money would be tied up for the year, or at the very least the duration of whatever project we put their specific lump some towards. The issue with paying out by the project would be that some projects will turn around in 3 months and others a year. 

My next thought was to offer a 5% return every 4th month, with the option to let the interest compound or to withdraw their interest. A friend of mine offered 5% quarterly, but that seems like too much? 

If anyone has any experience or ideas on how to structure these investments i'd greatly appreciate your input. 
 

[Kyle J.]

Sounds like you're basically talking about doing a syndication where you pool investor money to create a fund to purchase these flips.  In my opinion, that sounds too complicated and expensive for what you're trying to do.  

For one, taking on investors with capital contributions as low as $10k, you're going to need/have a lot of investors. Also, it's going to be expensive for you. There will be legal fees (you want to be SEC compliant right?). Plus, offering a 5% return every 4th month (15% APR) that can be withdrawn or compounded is unnecessarily rich and complex.

I'm not sure what type of deal flow you're hoping to support, but if it were me I'd try looking for a few private lenders that are familiar with your successful track record and would be willing to fund your future flips.  Just do one lender per one deal, with no fancy pooling/syndicating of the funds and it'll be a lot cleaner (and cheaper for you).  Keep the lender as a debt partner and pay them a fair return (10-12% or whatever you guys agree to), and hopefully everyone is happy.  Then just keep repeating the process.  

Anyway, just like anything else, there's more than one way to do something.  This is just one person's opinion.  

Best of luck to you.