funding a turnkey deal with private money or IRA?

5 Replies

Until I'm ready to do conventional financing with my own capital, how would it be possible to structure a deal with a third party private money investor (or their IRA) so that they contribute the DP and it still makes sense for everyone?

I'd really like to get in the game without using my own capital at the moment and I've found some really great turnkey providers to work with.

Let me know if you have any thoughts on this,
thanks

@Brandon Schoen

By structuring it as a promissory note investment. You or your company would be the borrower on the IRA promissory note. The note would be secured by the property. You and the IRA owner can structure the note as follows for example.

The IRA would receive interest payments with a final balloon payment.

@Mark Nolan thank you Mark. Would the IRA owner simply be earning a greater % return on their money with no ownership of the actual property correct? What if they additionally wanted to own more of the equity or cashflow in the deal. Ideally, how would you specifically structure this? (ie: 10% interest for 10 years with balloon?) thank you!!

What would prevent the third party from investing directly with the turnkey provider? To my understanding, there isn't much value that you are adding by becoming the middle person other than being the one who picks and chooses from the TK inventory. After a certain amount of time, which is set up between you and the third party, you would then acquire these properties and collect cash flow. Are you letting the third party know that you are purchasing TK properties or making them believe that they are getting a great deal through you and your "connections"? I only ask this because I thought of something similar but decided not to go through with it because I was basically just deferring my cashflow for a later period, meanwhile my third party would "think" that I did all the work when really they could have done it themselves. Just my .02.

@Justin Young   great point I thought the same thing... it happens all the time in other businesses - one person provides value because they know of a resource to find good deals (ie: basic arbitrage buying something for less and selling it for more, providing transactional value perhaps not huge impact)  So in my perspective I would be providing value by taking valuable time to learn where they good deals are and providing a better return for the investor then they are currently getting and then bringing the deal together, they may want to invest in real estate but they just don't have the time or know where to look.   Would it be ethical to tell them these are my "connections", or wouldn't they see this somehow through the paperwork?  or maybe they don't see any of that because it will be separate and they'll just see the note secured by the property.  Anyhow, I'm just looking for a creative way to get into buy/hold properties with other people's money to get started. Any further advice or wisdom is much appreciated!!!!   thank you thank you

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.