Down Payment question... (i hate being this guy).
I am in the position where it looks like a few projects could all be coming to fruition in the near future. The downside, I think I will only have enough capital for 1-1.5 of the projects when there is potentially 3 coming (likely 2).
I am curious your guys' thoughts no this.
I am partnered with family on an existing project, and want to potentially use the parents for a type of loan for me.
They are on the thought of 'eh, we will happily take interest from you, since you pay more than the bank'. I used this when we bought our last complex as I had some capital tied up until a couple months after we closed. So they allowed me to do a bridge loan with them at 5% until I got them paid back.
So here is where the issues occurred. We stretched our capital pretty tight during that period and the thought of having a bridge loan to the parents made me paranoid as heck... We repaid the whole thing in 4 months (i told them 'lets plan for a year') so there was never any stress on them, although the stress on myself in that position was more than enough to teach me I didn't like lending that way much in the future.
Well, 16 months later and here I am wanting to be an Alzheimer's patient. Only I have a slightly different idea for them and I want you guys to tell me if you think its a good idea... If i am screwing them, if i am taking too much risk, etc...
Potential new project value 1.5-2mm. I would be splitting hopefully 50/50 with some friends of mine who are top notch developers. (they would give me how ever much I wanted due to me bringing the project forward) My income is very volatile... If i have a great year, i could potentially raise the whole 150-200k in the next 9 months... If i have a bad year/issues with another company... who knows if I can raise half of it in 5 years. That volatility is the source of my stress if you can't tell. :)
My idea to them****
They have at any given time a good chunk in cash equivalent assets and would happily take interest. I might propose to them that they buy 50% of the project. With the following stipulations. They get paid back a 6% yield... guaranteed by me. But I hold any guarantee's on the note/etc... So their risk is the invested equity only. On top of that for me to 'buy them out' they need to get bought out at a 10% yield pace...
So if the project does bad and i am subsidizing their yield early on and they only get 6% the first 2 years.. I would need to pay the compounded catch up to 10% as well as the initial equity to take over the ownership.
I am just curious if this is a screw job on them. Part of me thinks its fair, and part of me is uncertain so that is where I ask you guys for input on this...
Thanks in advance for your responses.