Silent partner return on investment

[Ryan Hesselberg]

I'm looking at buying a commercial house and storage units on one property. Cost is 850,000 I have to silent partners for $100,000 they are looking for a 10% return on their investment. This is my first time using a silent partner. My question is how do they give their return? Am I paying them monthly from the prophets?

[Kyle Altenau]

That's part of the negotiations with investors. It also depends how the deal is structured as well. Are they part owners of the property or did they lend you the money? 

They could be part owners with a 10% preferred return. At that point, it's still up for negotiation. Some deals are structured with the 10% being accrued, so they do not get paid anything until there is a capital event that triggers it (refinancing or selling the property for example). You can also do a split. For example, 5% accruing and 5% deferred. In that instance you could be paying monthly payments at a 5% annual rate, while the 5% accrues annually as well. Or you could be paying 10% annually with monthly payments the entire time. 

If it's a loan, I'd say the most common would be monthly interest only payments. But some loans, especially in cases of private lenders, can allow for all of the interest to accrue until there is a capital event. And again, you can do a split as well. 

I think this is something you may want to speak to an attorney about. It will cost more, but it will iron out all the details. If these are friends or family, I find that it's even more important to have all the details air tight. The reason for that being to protect both parties that much more from any misunderstanding because of the personal relationship.