BiggerPockets

Hey all. Its been awhile since I have been on here.I lost my job and about lost it all trying to start my real estate business but now Im back and ready.I have a silent partner that is going to invest $50,000 in my real estate company. He has given me 5 years to pay him back and is interested in splitting the equity on my properties at this time. What would be a common return for this type of deal. I have never done this type of thing and want to be fair to both parties since he is fronting the cash while I do all the work. Does a 50/50 deal sound good for a 60/40? Just wanted to see what others have done in the past. As always thanks

Tyler, when your partner agreed to invest the $50K, he must have mentioned something about what he expects in return. If he did not give any numbers but just said that the two of you would split the profits, it means he assumes a 50-50 split.

If you want more than 50%, then a good way to approach the subject with your partner would be to discuss a performance bonus for you in the event your investments performed beyond his expectations. You can first ask him what kind of return he expects from his investment and then work your numbers such that you split it 50-50 up to a level that is slightly above what he expects, and then you ask ask for a higher share of anything beyond that.

BTW, I don't know any serious investor who will be happy doubling his money in 5 years in an unproven new venture. This is like an angel investment. My friends in the angel and VC industry have a simple formula - five times in five years. It sounds high until you account for the many duds and a few winners in their portfolio.

Ill give you a little bit of a background as this is a little bit different than what most of you have been through. In feb 09 I lost my job and moved back home with my rents to save money. After painting fences for extra cash for a friend of my moms, I was hired as an engineer for her son at ballco manufacturing. I became the quality control engineer there and have been there since august of this year. I have been asked to work extra everyday and wanted the owner of the company to know what i do when i leave work and on the weekends. I wanted him to know so that way he realizes im not giving up on my dreams regardless of any job. After talking about real estate and my goals with the owner of the company, he became interested and wanted to learn more. I presented him with my offer of a cash on cash return in a year or two and pay him back in full. I think his style of thinking is a longer term and has given me 5 years to figure it out. This is where I am at. He has reserved the money for me once I have a contract that dismisses his involvment if anything gets hairy.

So everyone is in concenous that I should try to pay him back as soon as possible? At what rate would you provide? 50/50? Is that fair?

Oh, by the way, congratulations for speaking up and finding a potential funder. For anyone looking for private money, now you know the method.

If you'd like, Tyler and I can sell you a DVD where we dress in suits and say that 100 times. Normally $2999, but a special today only for BiggerPockets, its only $999. That's a joke.

Haha I like it Jon. The way I figure it, by gaining this money at the start I can venture into real estate faster than I would on my own. I have no problem sharing some of my profit early on in my career. Like I said Im 24 and have plenty of time to regain some of the profits. Im going to propose somewhere between a 45/55 and 50/50 profit for the first few deals, if that sounds fair and equal from what other would agreed on? I have faith that I can buy right and make it work like you said. Thanks again for all the replys. I truly appreciate all of the effort that people put forth on answering my questions truthfully. I owe all my knowledge to this site and the people on it.

Tyler, I wouldn't suggest a 55-45 deal to begin with. Just got with a simple 50-50. Get the first couple of deals done, show your investor how good you are, and then negotiate.

Would I be the 55%? and the investor 45%? Because orignally i was throwing around this ballpark number

Since you are a beginner I think 50/50 is way fair for you. Think of it this way. If someone approached you and said hey I will lend you some money but I want a 50% cut. You would jump at that offer. What other means do you have to get into the game?

I am pretty surprised someone who has 50k is just gonna give it to you and say alright go at it boy. I bet when it comes down to it this guy will require some contracts and paper work.

This is how I would approach it.

You do "One Deal". That is it. After that one deal is done you figure out what the profits were. Hopefully there were profits. Say you now have 60k. 55k is returned to the investor and you now have 5k in your pocket. At this point both parties can evaluate if they want to move forward with another deal.

That is the only way I would consider loaning out money.

Don't get greedy...