Financing dwonpayments - how to, 2nd position loans?

[Olga Kostrova]

Hi guys, how do you structure a financing offer for a private lender/investor to make it attractive for them to take the 2nd position for a fix and hold property?

Let's say, I want to offer equity to a lender but would like to share income from the property sale (in let's say 10 years or at any market pick period so we all take advantage of appreciation), but not share a portion of mid-term rental income, so I can use cash flow for other deals acquisition (marketing etc.) - for deals in which they too can participate.

Can this deal structure be attractive to a lender/partner investor, if I give them higher equity in the property?

Let's say I buy properties at an average $300K ARV that will appreciate over 10 years to be valued at $___ (? hard to predict, so blank). I finance with hard money (let's say it's $200K-ish, including purchase price, rehab and closing cost), and a lender/investor takes a 2nd position by investing $80K. They don't participate in income distribution, but get ___% of the sale of the property. Basically for them it's more of an asset acquisition than cash flow (in a similar fashion to how we invest in tech start-ups - to see ROI when the company exists without relying on income distributions)…

So, what % would be fair for them and yet make financial sense for both, considering that hard money interest is paid over the years?

And what the clause in our contract would sound like to clearly articulate the agreement and minimize risks for all parties? (and yes, the lawyer would look at the final document, but I would love to hear your opinions :-) ).

Do you know anyone who would finance such deals in Virginia?