How Tiered Returns Has Helped Us Structure Our Private Lending Deals

[Mitch Smith]

How Tiered Returns Can Help Structure Private Lending Deals

Hey BP community,

I wanted to share some insights on structuring private lending deals, particularly when working with private investors to fund real estate projects. Over the years, I’ve learned that offering tiered returns can be a win-win strategy—it rewards investors for their level of commitment while helping us maintain flexibility in our business. This is a structure we’ve implemented with our private investors, and it’s been working really well for everyone involved.

Here’s an example of how tiered returns might look in a lending scenario:

Investment Amount	Annualized Return
$100,000 - $249,999	15%
$250,000 - $499,999	16%
$500,000 - $999,999	17%
$1,000,000 and above	18%

Why Use a Tiered Structure?

1. Encourages Larger Investments: By offering higher returns at higher tiers, you incentivize investors to allocate more capital to your projects.
2. Builds Long-Term Relationships: Investors appreciate being rewarded for deeper commitments, which helps foster trust and repeat business.
3. Scales with Your Business: This structure can align with the complexity or scale of your projects, ensuring that you have the resources you need while staying competitive in the market.

Key Benefits to Investors

• Security: Deals can be secured by tangible assets, such as a deed of trust or promissory note, providing peace of mind.
• Flexibility: Payments can be structured to suit the investor’s needs—monthly, quarterly, or upon project completion.
• Attractive Returns: With returns starting at 15%, investors often see better yields than traditional investment vehicles, like stocks or mutual funds.

How We’ve Implemented This
This structure works particularly well for our large renovation or development projects where multiple investors may be involved. For example, with our private investors, we always ensure that deals are secured by real assets and provide full transparency throughout the process. We’ve found this approach fosters trust and creates a solid foundation for long-term relationships. Transparency, regular communication, and clear milestones have been critical to making this successful.

For those of you who are considering working with private lenders or want to improve your deal structure, I hope this gives you some food for thought. Have any of you used a similar tiered return strategy? I’d love to hear how it’s worked for you and what challenges you’ve faced.