How to pay investors back

Question

Hello,

A little back story on me, im 21, in college, and i want to invest in some multi family properties to help pay for college and the be used as semi passive income after college. Ive been talking with my dad about this idea and in a short story trying to convenience him to be an investor in me/my business. I would use his money as a down payment for the multi family and then pay him back with interest.

My questions is how do you guys go about setting up the terms for paying an investor back. I dont even know whats typical interest rate would be in this situation, for how long, does he own part of the property, or just get a certain amount back, and so on. I havnt been able to find any examples on BP as to what other people do. If you guys could lend some support/tips i would greatly appreciate it.

Also for someone in my situation, do you guys have any tips on going and convincing a bank to loan a college student a few hundred grand(with a 10-20% down).

Thank you for your help.

Jaspreet Baveja · Answer

@Brett Eskew - Welcome and good for you for thinking outside the box this early. I don't imagine any regular bank will take that chance. A strong credit history, a couple of years of solid employment, and a co-signer are all great things to have for them to consider it. You might have some luck if you take your father in as a co-signer on the loan. Local Community based Credit Unions, some even University specific might be better bets! You can bring your father in as a lender on the deal, but won't work if you're getting a bank loan, and you'd just pay him a set monthly payment. (Google Loan Terms and that should help, Rate, Duration, Payment Schedule, Amortization etc). You could bring him in as an equity stake, and he would just get dividends when you make more money than you owe. You can set it up HOWEVER you want, he's family! Good luck bro! P.S. - Some Private Lenders or Hard Money guys might even look at it if your father buys it in his name or is a co-applicant! Only works best in short term scenarios due to high rates, but something to consider.

Brett Eskew · Answer

Thanks for your guys response. In regards to my dad as an investor, I’ve been trying to think of a way to pay him back fairly. He wants 10-15% per year but does he get his initial investment back after 5 years? Does he own x amount of the rental? Or just x amount of the business for as long as I have rental? it’s a little tricky to come up with something which is why I was wondering what others have done.

Frank Hinck · Answer

@Brett Eskew

Private money like someone you have a relationship with would likely get you the most favorable terms.  Ask what they want, 8-10% usually.  Or maybe they want some equity too once the down payment is paid back?