First time asking for private capital - What ROI should I give?

Question

Hello everyone!

I'm about to start reaching out to some contacts I have to see if they'd be interested in investing private capital with me to help fund BRRR deal/s I plan to have this year.

I have never done a BRRR deal before, only a very minor live-in flip. Because of this, what ROI should I promise my investors? 10%? 12%? I was even thinking 15% to account for the higher perceived risk of investing with someone new like myself.

The contacts I will be reaching out to will be mostly friends, previous employers (who own many commercial real estate properties), undergrad professors, etc. Most people who know me know me as someone who is dependable, hard worker, and a guy who does what he says. For the most part I don't think I'll have to sell the idea of investing with *me* all that much. One of my professors from when I was in undergrad told me (and at the time I didn't know anything about REI), "one of these days you'll be wanting to start a company. I know you and that's how you are. When that day comes, I better be on the list to call for investing."  Although I don't have a track record in REI, those who know me trust me and know that I would put them getting their money back+interest as my top priority.

All advice/input is appreciated!

Thanks,

Nicholas

Nicholas Morgan · Answer

Thanks so much for the reply! I have decided to go with a flat 12%. I spoke with a colleague today and he is assessing his finances but said he could invest 20k and possibly up to 50k! He'll let me know by the end of the week. Which is exciting! The conversation went much easier than expected and I've setup another meeting for tomorrow with a different colleague interested in REI!

I've got a deal on the line that I need 60k for purchase and 20k for rehab so it's all coming together!

Bob Woelfel · Answer

@Nicholas Morgan you could approach this a few different ways.  You could do what the hard money lenders do and basically tell new clients that rates are between 10-15% and points from 0-4 depending on the deal, etc.  Or you could say that you "offer" rates at a flat 12%, etc.  When I'm talking to a new now lender I basically just tell them what we'll pay.  If there is some negotiating I don't necessarily mind because we can typically come to an agreement that's a win win.  If they aren't interested I find it's mostly because they aren't interested in lending period or don't trust you.  It's rarely because they want 12% and you only want to pay 10%, etc.  I would just keep it open ended to see who is interested and if they want to chat more then you can get into the details of what you should pay.  As a new investor working with new lenders the bulk of the questions you will get will be about how they are protected and how you aren't going to LOSE their money.  I would prepare for that conversation more than I would worry about rates of return.  Best of luck.