Raising money from friends and discussing their returns

[Chris Marshall]

I am currently looking at a great property in my local community. It is about 500k and i need a little over 100k for the Down payment but I thought it would be better to raise 150k and have a little less on the mortgage and there are multiple friends I think would like to invest so I was hoping to have 3 of them each put in 50k for the total needed. Now what I'm wondering is the 7% return they see on their money, is that annual return or is that supposed to be monthly? Right now I'm running it 80/20 they will receive 80% of cash flow and me 20%. With that split it will come out to 7% annual return about $3500 a year/each. Assuming the 7% annual return is enough how should I go about getting their initial investment out of the property if there isn't a whole lot of forced appreciation I can do to the property? There is a little, but not enough to justify refinancing that 150k back into the loan 2 years later. not unless rents start to climb in my area which I feel as though that is a bad gamble to bet on just to get this deal done. So do I do some sort of step return of investment? Give them 50% of investment back with a refinance and then adjust the split to 60/40 or something to where they are still getting 7% annually? The whole math of how they make their money back and how I am supposed to account for that in the deal has always kind of baffled me. If there is a good resource for figuring out how to run the numbers on deals like this I would be greatly appreciative for pointing me in its direction.

[Colton Fairchild]

I agree with @Tom S.

This specific deal you are talking about has a rather low ROI. Maybe your friends would be happy with that but I believe the majority of people would pass on this.