Updated over 13 years ago on . Most recent reply
How do I structure the terms for my investor (first timer)
I'm a Real Estate newb. I'm a successful business person, but this is my first stab at real estate. Ultimately I want to do this to allow my brother to quit his blue collar job and do this with me full time. But I want the first one to go well. What I'm seeking is advice on how to creatively pay back a unique investor. I have someone who is investing $50k for my brother and I to flip some properties (this is in a low cost real estate area, so 50k can easily buy two small 2-bedrooms to rehab). I need to decide how best to invest it and of course pay her back. She doesn't want an immediate return for either interest or profit. She instead wants to have us flip the house(s) and roll her share of the profits toward the next home(s). We are not interested in renting the homes. Quick turns.
My dilemma: What are appropriate terms for this type of arrangement? Since it's not really like a conventional loan, and she's not wanting the money back right away, and I'm not interested in her being a partner...what is a fair offer for terms? I thought about a % of total profit, but what happens when in 3 years we outgrow her 50k investment. I won't want to share more than necessary. So I thought about accrued interest, either payable upon sale of the home or ongoing. But my accountant said w should put in some type of management payment for us. So my first question is what is the best way to calculate a return on her investment that is fair for all involved?
My second question is how to keep track of her investment/return. My thought was that we open a side savings/escrow account to put any profit shares/interest for her into. So if we sell a property and make money, we deposit her profit share, or if it is an interest return, we deposit that in there. Her initial 50k is used for a predetermined number of years, then she can have it back or let us keep using it at X rate. But I don't know if this is the best way. I was hoping you might have seen a better scenario for me to present to her?
So in summary...my two questions: What are fair terms for her 50k investment? and How do I track her return appropriately?
I really appreciate any insight and advice. Now I'm off to explore the site some more!
Most Popular Reply
Why not just assign an interest rate and pay her simple monthly interest payments; when you've "outgrown" the investment, you pay her the $50K principle.