Private Money Terms and Solutions

[Matt Cupp]

Looking for thoughts and ideas...

My wife and I have been flipping for a couple of years. Our profit has been between $20,000-$35,000 on the few we have done.

I am passionate about real estate and investing and have been sharing information with family to get them building wealth and alternative streams of income through investing.  Which has led me here.

My parent in-laws have offered to partner/lend money for a return.  They are financially healthy and in great shape so for them the terms have a wide range of win-win scenarios. 

My sister-in-law and her husband have just got married and are wanting to invest with us and our real estate instead of the stock market.  They have about $10,000-$15,000 that they have available to invest.  Yes, that isn't much, yet my wife and I are blessed with our finances and I'm willing to have them join us to spark some interest and get them more involved.

With the following deal, what would you offer the other 2 parties.

Deal was found by myself and I will be overseeing the contractors, making selections, etc.  In-laws live about 2 hours away.

Purchase Price: $83,000
Rehab Costs: $45,000
All In: $128,000
ARV: $175,000
Estimated time: 4-5 months based on comps and current market trends

Estimated Profit after all fees, holding costs, closing costs, etc: $40,000

Current proposal.  How would you allocate returns based on these?

Me: $59,000
Parent In-Laws: $59,000
Sister in-law and BIL: $10,000

There is a good possibility that we repeat this in the future and so perhaps looking for something to use as a template going forward.

Maybe a sliding scale dependent upon their amount of contribution?
Up to $25K: 10% return on investment (i.e. $15,000 investment yields $1,500 return)
$25K-$75K: 12.5% return on investment (i.e. $50,000 investment yields $6,250 return)
$75K and up: 15% return on investment (i.e. $80,000 investment yields $12,000 return)

Risks involved would obviously be if a flip goes bad and my wife and I would be on the hook to make up any differences if our profits didn't cover the loan paybacks.  

Do you offer to pay them typical hard money terms so they feel they are getting a little more than they should and make monthly payments as any other loan?

I'd love to hear what other terms you all may have had with family.

Thanks

[Bill Quigley]

Some of what I have learned was that you can just provide them straight Interest payments, such as 12% simple interest per year, which is 1% per month.  So you can just provide monthly payment to them of;

Parent In-Laws: $59,000            $590/month
Sister in-law and BIL: $10,000    $100/month

If it takes you 6 months to Flip and Sell then they make 6 times the above amount.  Then you pay them back their Investment after the Sale.

Or keep their Investment to use on your next Flip, and continue to pay them the monthly interest payments.  They are getting 12% per year which is a pretty good return.  This is what I would do if I had that opportunity.