I am a relatively new real estate investor. I've flipped two single family properties for rental - both were 80% sweat equity. I have come across someone my same age who is interested in being a silent investor. He's done minimal investing, so we are both new at this.
He wants to do a "trial run" on my next single family home. I expect this to be a 5-7 year investment - i.e. rent and then sell. We are challenged with identifying equity and cash flow split.
Property Purchase Price: $182,000
Cash to Close: $35,000
Repair Costs: $30,000
I'm expecting to cash flow $400-$450/month (Rent - mortgage payment)
What would be reasonable for him to expect from a cash flow return and an equity split?
I was thinking of giving him a minimum 5% return on his $10k investment + a 15% split on profit. His expected return would be about 9%.
He would get a 7.5% equity split at property sale - if that 7.5% was less than $10k, i would supplement the difference as long as equity payout did not exceed 85/15 split.
Impressive thought process and numbers here. I think you are very close to making something work well for you both. I see two options, something similar to what you have proposed and another where you find a way to "buy him out" after the rehab through a refinance so that he gets paid back quickly and you can keep all future cash flow and own the property. The 2nd option uses his finances as more of a short term hard money loan, while the 1st is a true partner which I tend to encourage most people to stay away from. I have many thoughts and some questions, so I think if you are open I'd love to chat on the phone. You can reach out to me directly via email or phone on BP. I hope to hear from you soon!
Thank you for the quick reply, Ryan! I'll send you a DM shortly.