Investors questions and how to answer

[Jeffrey Smith]

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.

[Ryan Murdock]

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.