Investors questions and how to answer

4 Replies

I spoke with a possible investor recently. After offering him 12% of the profit over a year term, he asked, “if you don’t finance to pay me back through a bank loan for whatever reason after that year, would you give me another 12% every year?” I did not know how to answer, so what would be a response for a question like that? This would be a purchase/rehab and hold rental.

@Jeffrey Smith, so he'd be giving you a loan, right? He's not taking equity?

If that's the case, then, yes. He should continue to get a return on his money until you've paid off the note. I'd love to see the details here. 12% of the profits sounds incredibly low, especially if he's bank rolling the whole thing.

@Jaysen Medhurst so he will be giving me the money to purchase plus the money to rehab... then my hope is to finance the property afterwards with the hope to pay him back +12% And keep the property to rent out myself

Promotion
BiggerPockets
The one-stop-shop for REI
Find Local Home Improvement Pros!
Check out our network of trusted, local contractors for all of your home improvement projects.
Find a Contractor
Originally posted by @Jeffrey Smith:

@Jaysen Medhurst so he will be giving me the money to purchase plus the money to rehab... then my hope is to finance the property afterwards with the hope to pay him back +12% And keep the property to rent out myself

So your investor is offering you a private loan at 12% annually (I think), not 12% of the profit. He wants to know if you will continue paying him 12% indefinitely even if you can't refi. Your answer likely should be "yes" but I'd run the numbers again and see just how sustainable the project is with a 12% loan or multiple years OR be extremely confident you will be able to refi sooner to a lower rate. 

Originally I said i'd rehab and pay him back in 6 months after the rehab plus 12% of the loan (assuming I can refi.up to atleast what he gave me plus the 12%) But then he asked "what if you cannot refi.per your plan,would you then pay me 12% annually until you pay me back?' That's were I was stumped