Getting to first deal, is the offer a good one?

[Keith S.]

I am considering providing rehab money to a local investor who invests in college rental houses.  He rents a room for $300-400/month.  He has 4 houses.  The largest of which has 10 rooms - he is currently renting 9 rooms in that house.  I have several additional questions to ask him to get an understanding of his strategy and whether I'd like to invest.

First, here is the offer on the table...
He offered me a 6% + 6% plan. If I invested $60,000 my return would come in the form of a monthly check for $300 (6% APR) and $174 (6% of their current average profit). This would give an effective APR of about 9.5%. Once they fill another property they own their monthly net cash flow would increase to $4,200, give or take a $100, and would increase my check to $552. This would give me an APR of 11% and that would grow as they add other properties. They would like to have a three year term on my investment. At the end of three years we would evaluate the investment and I could decide if I wanted to continue investing with or take my money back out.

And I have made a shortlist of several questions what am I missing...

• What is the current occupancy of all your properties?
• What will it take to bring the other properties up to the point of being ready for occupants?
• Are there any licenses required for these houses to be boarding houses?  If so do you have these licenses?
• What is your current lease term with the 9 students in the 10 bed house?
• I interpret your current monthly profit is $2,900/month.  What is your current monthly revenue?
• How would you guarantee my investment?