How to formulate a deal with investors?

Question

Hi,

So the following is all hypothetical:

How does one start by making a deal with investors? I am a brand spanking new investor who have just closed on a triplex.

I have heard of deals such as 8% return in simple interest. In 5 years, they can either cash out or continue investing. Thoughts on this deal?

For example, if he or she gives me $50K with 8% simple interest, in 5 years, I'll give them $20K of interest plus the $50K originally owed.

I would assume I need to involve a real estate lawyer? where would I find one?

Thanks for chiming in!

Vinh Nguyen · Answer

@Joseph Firmin great great advice! thank you! can you please critique the following offer and let me know if it is good/bad? You can be brutal, blunt, and honest. I am here to learn :)

Loan amount: $50,000

8% interest rate: simple interest

Annual amount received to the lender (no monthly payment): $4,000

5 year balloon payment: $50,000

No prepayment penalty

Joseph Firmin · Answer

It sounds more like you are seeking a private lender. The scenario sounds like a debt investment for the investor. They put up the $$, you give them a monthly distribution (principal and interest) and then there is a 5-year balloon payment. Here's an example of one we did with a debt investor (private lender):

Terms:Loan Amount: $80,00010% Interest Rate25 Year Amortization5 Year Balloon PaymentNo Prepayment Penalty2nd Lien PositionMonthly Payment: $726.96 (payable the 20th of each month during the loan term)Total Monthly Payments: 300Starting Effective Date: 1st Payment Due Date – the 20th of the month following the closing date of the property.

How to formulate a deal with investors?

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