I am getting ready to launch into my first BRRRR. I am going to use hard money lenders and will be collecting capital funds from 2 family members. What type of returns should I be giving them? They are not partners, I am simply using their capital to help seed my hard money loan and/or for repairs.
I would like to hear what returns other investors are giving their family members on these types of deals. Thanks.
Every situation will differ based on the investors expectations and value of their capital.
I would say somewhere in the 7-10% range would be fair for both sides.
A little more expensive than traditional funding and a little less expensive than HML.
Thanks @Brian Garrett
I was thinking the same thing but was not sure what industry trends were. I have several buy & hold properties so I have experience. I was also thinking of paying lower rates, but paying a percentage of profit on the refi. This may disappoint my investors but give me some room on the front end. Anyhow, thanks for the advice. I'm putting together a business plan for my investors.
I'm currently paying my private investors 6-8%. But that's because I get hard money at 7-8% and it doesn't make sense to pay private money more than hard money.
However, back when I was paying 12% on hard money, I paid my private lenders 10-12%.
When I first got started in the business, I paid a family member somewhere between 20-30%. It was worth it because they were the only ones who believed in me to lend me money, even though I had no experience in real estate.
A partnership (i.e. percentage of the profit) is less risky for you and might be better for the first few deals? Just be sure to explain to them the difference (risks vs rewards) of being in lien position and being on title.