How do investors get back their money?

Question

In the beginning stages of raising funds for a student housing development project, but am curious to know what are the different methods investors are paid. For instance, do they get paid at the end of the investment period in one lump sum plus interest? Or do they get paid on a monthly basis plus interest?

Granted, there isn't much info here but would love to hear your guys' thoughts.

Ian M. · Answer

Achi Adamit its any way you structure it and whatever the private lender agrees to.  If they are truly private lenders (as opposed to a hard money lender that sometimes call themselves "private lenders" and who have their own lending structure), then you come up with the game plan.  it obviously has to be reasonable enough for the private lender to agree to it, but once you do make sure you speak with an attorney to get it on paper for both of you AND to make sure you are within the state/federal laws (e.g. usuary laws, etc...).  So if you project can't pay out until completion/refi, let your lenders know that and negotiate on terms from there.

DISCLAIMER: THIS IS NOT LEGAL OR TAX ADVISE

Carlos Moreno · Answer

There is a difference in private money lenders. There are Debt Partners who will lend money for deals in exchange for a specific interest rate so they can get their money back. And then there are Equity partners who will invest money into your property in exchange for ownership percentage. They receive a percentage return on the investment that includes cash flow, appreciation etc..

Account Closed · Answer

when I borrow private capital for my distressed house deals, I pay them monthly plus interest. I'm sure there are a million different ways....

Raechelle Carroll · Answer

you should think about what's comfortable for you and then structure the deal based on that. If you know you won't be able to pay until the deal sells then structure your agreement that way. If you'd rather make monthly interest payment abd just pay the principle at the end then structure your deal that way. There's more than 1 way to skin a cat.

Michael Wolffs · Answer

I would think equity partners would get paid a percentage of the free cash flow (based on their investment percentage, and what was negotiated when they invested), and a percentage of the equity at sale.

Then again, these deals can be negotiated anyway the parties involved agree to.

Achi Adamit · Answer

Thanks Carlos. What are the different ways debt partners get paid? In increments until end of term (say 1 year) plus interest, or just get paid at the end of the loan term with interest?

In this specific project, there won't be money available to repay investors until refinancing of the property once property is fully occupied..

How do investors get back their money?

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