Hurst, TX · Member since 2016 · 192 posts · 114 votes
Hi friends, how do y'all usually divvy up money made from buy and holds that a partner/partners have helped you to buy? For example if I bought a 100k home in my name and needed 20% down and a partner gave me 10k (10%) to help buy it. I obviously won't be able to pay him back right away if I just planned to buy and hold it. What kind of arrangements do y'all usually do or recommend? Same question with multiple partners. Thanks!
Stevo from Dallas Texas
Jessica Zolotorofe Great explanation thank you! So in the JV model, you just pay him monthly until he's paid back in full? What's his incentive to invest then? Do you promise to pay him back plus some extra?
If you have a friend kind enough to lend you money without any interest, tell him I am interested in being his friend also.
Hi friends, how do y'all usually divvy up money made from buy and holds that a partner/partners have helped you to buy? For example if I bought a 100k home in my name and needed 20% down and a partner gave me 10k (10%) to help buy it. I obviously won't be able to pay him back right away if I just planned to buy and hold it. What kind of arrangements do y'all usually do or recommend? Same question with multiple partners. Thanks!
Stevo from Dallas Texas
Like there is one, singular way of doing it the right way !?!?. Let me ask you by posing this question. When you and your friend decided to work together as a Joint Venture (JV) what was decided amongst yourselves.
Hurst, TX · Member since 2016 · 192 posts · 114 votes
9y
Chinmay J. I haven't yet asked a friend for money for a project. I do have friends and family interested in giving me money for future deals. But I have no idea how to structure deals with partners. That's why I'm asking how y'all have done it before and any advice would be golden. 😀
Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
9y
You can pay him a percentage of all rental income after expenses until he is paid back, and when there is any "capital event", so god forbid a casualty, or if you sell the property, then he gets reimbursed before you split any profits. That's assuming you are even joint venturing with him and he is not just acting as a lender. If you intend for the latter to be the case, then just do a regular set of loan documents, with monthly interest only if he doesn't need the funds back as quickly, or P&I payments monthly with a balloon payment at the sooner of a maturity date or your sale of the property, and then you just pay him the monthly payments like any other mortgage loan to a bank, and only after that payment and any expenses (and maybe a reserve account for the premises) do you take the profit.
Chinmay J. I haven't yet asked a friend for money for a project. I do have friends and family interested in giving me money for future deals. But I have no idea how to structure deals with partners. That's why I'm asking how y'all have done it before and any advice would be golden. 😀
OK. So we are talking about hypothetical here. I thought the deal was already underway. Like I said, you can structure it anyway you'd like as long as its not anything illegal.
A) You can cash out refi and give your friend his $10K (if I am the friend it would be $10K+ INTEREST)
B) You can let him have say lion's share of the rent payment until he is paid off.
C) You can keep the status quo and let him have his $10K (again $10K + INT at the backend) when you decide to sell the place.
It all depends on what you decide. Thankfully, you have a lot of wiggle room to negotiate here.
Hurst, TX · Member since 2016 · 192 posts · 114 votes
9y
Jessica Zolotorofe Great explanation thank you! So in the JV model, you just pay him monthly until he's paid back in full? What's his incentive to invest then? Do you promise to pay him back plus some extra?
Jessica Zolotorofe Great explanation thank you! So in the JV model, you just pay him monthly until he's paid back in full? What's his incentive to invest then? Do you promise to pay him back plus some extra?
If you have a friend kind enough to lend you money without any interest, tell him I am interested in being his friend also.
Hurst, TX · Member since 2016 · 192 posts · 114 votes
9y
Chinmay J. So what's usually the offered interest rate when someone gives you money? For example, if you gave someone 10k for a deal what percentage would you ask for in return and what amount of time do you expect to be paid back in full?
Chinmay J. So what's usually the offered interest rate when someone gives you money? For example, if you gave someone 10k for a deal what percentage would you ask for in return and what amount of time do you expect to be paid back in full?
Somewhere between traditional financing through bank and hard money lender. I would ask for Interest rate of 7-8% per year.
Hurst, TX · Member since 2016 · 192 posts · 114 votes
9y
Max Tanenbaum acquisition cost being the 10k? So if my mortgage was $500/month and I rented it out for $1000/month we'd each split $250/month? Would this go on forever or just until he's paid back plus interest?
Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
9y
@Chinmay J., why such sarcastic responses? @Steven C. Suarez, the reason he would be giving the loan interest free is because that is his contribution to the partnership in order to "purchase" his membership interest. So his "extra" would be his % of all of the profits that the entity made, which has the potential to be much greater than the interest return on his small loan. Every time there was a distribution to the partnership, he would get his, and it would not be paying down the loan principal, it would just be his share of the profits. So if you take in $500 a month in excess of the expenses of the lease, and the reserve account you should be maintaining, then you each get your percentage of that $500 in profits a month, but at the end, when you sell, he still gets his full $10,000 back and then you split the balance based on your percentages. Does that make more sense?
Hurst, TX · Member since 2016 · 192 posts · 114 votes
9y
Jessica Zolotorofe oooooooh! Now I'm starting to get it. So it kind of is like buying into a stock. You each agree upon a reserve amount and whatever the profit is after that you split 50/50. So if the house rents for less one year, his return is less. Or more, then more. Or if the roof needs to be replaced, there might not be a profit that year. And if you decide to sell the house, he just gets his 10k back. Even if you made 50k in profit on the sale?
Jessica Zolotorofe oooooooh! Now I'm starting to get it. So it kind of is like buying into a stock. You each agree upon a reserve amount and whatever the profit is after that you split 50/50. So if the house rents for less one year, his return is less. Or more, then more. Or if the roof needs to be replaced, there might not be a profit that year. And if you decide to sell the house, he just gets his 10k back. Even if you made 50k in profit on the sale?
So what happens if you want to sell but the other dude doesn't want to sell. Or if you think maybe you should use granite countertops and he is a real cheapskate like me and wants only laminate countertop? Also what if tomorrow you get an offer to buy the house for $200K in the dead of winter, and he wants to jump right on it, but you being the smarter one, wants to wait till you get $210K, which you think you might get come Spring time. How do you resolve the conflict?
Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
9y
I have a couple investors (I don't call them partners because they are not on the deed)
Basically they give me a lump sum and we agree to a term and interest rate. Most of mine are 36 month loan payoffs at 5-6%/year depending on how much they've invested.
If you do split a downpayment and are on the deed with them, I would do something more like split on profits based on how has the most equity in the place/who does the maintenance etc.
Investor · Northern, VA · Member since 2016 · 1k+ posts · 904 votes
9y
@Steven C. Suarez - Excuse my sarcasm. I was never hugged as a child. LOL.. But I think you get the bottom line now. You are better off (as much as possible) to allow your investors as little as control possible. @David Zheng said it best. They are investors. Not partners. They don't need to be on the deed. Once they get their principle and their interest (which should be decided beforehand) they need to shut up. You are using their money. Don't let them use you.
Hurst, TX · Member since 2016 · 192 posts · 114 votes
9y
Chinmay J. You are blunt and to the point. I like it. Keeps everything nice and clean. They give you money, you make it grow. End of story. Hugs are overrated 😂
Rental Property Investor · Carlisle, PA · Member since 2013 · 1k+ posts · 543 votes
9y
@Steven C. Suarez, all of these options are great ones and need to be considered. I will throw in one point to think about. As a relatively new investor with a small amount of experience, I assume from your post, you will have to make it worth it for your investor. You may need to entice and investor with a better deal than a more seasoned investor would. For example, you might need to offer a interest rate with a term and a small portion of the profit down the road. Or a higher interest rate than you might think is warranted. Bottom line is, ensure it is a professional relationship with all terms agreed to in writing with no ambiguity. The other responders are correct in that there are a lot of "what ifs", and the way you minimize those is by being extremely deliberate in the details and having a specific, detailed contract in writing. No matter what you agree to, your reputation and future borrowing ability will be based on your ability to pay back your investor at the rate and timeline, or terms, that you decided and agreed to in the contract. You pay your bills first. Once you have a couple of successful deals under your belt, the leverage will shift in your favor.
This all works with individual or multiple investors. Each relationship is extremely vital to your current and future success.
Hurst, TX · Member since 2016 · 192 posts · 114 votes
9y
Kevin Hunter Great answer. I was thinking about that. Being a rookie and only promising a 5% return may be a tough sell. Gotta get some skins on the wall first. I do think I'm leaning towards having investors rather than partners on my first few smaller deals. Now a 500k house would surely be a different story I'd imagine!
Hurst, TX · Member since 2016 · 192 posts · 114 votes
9y
David Zheng question, on your 36 month 5% a year loans from investors, do you have the right to pay them back early, in turn paying them less interest on the loan?