Private Investors Deal Structure

[Leila Moussavi]

Hi there!

I'm a new real estate investor looking to invest OOS in MF for cash flow in KC, Indianapolis, and Columbus and Cleveland. My parents are willing to fund my deals and are able to pay all cash for properties. This opportunity is obviously a huge blessing, and but I'm at a loss on how to structure the deal so I can provide returns for them.

I personally don't need to the cash flow from the properties in the next few years, so was thinking of giving them 100% of the cash flow for the near future. However, this would mean taking a long time for them to receive returns on their money.

Any suggestions about how to structure deals with them to ensure a quick(er) return on their money?

Thanks for your insight!

[Scott E.]

Kerry's post above is close, but missing the fact that when you try to refinance into long term financing you will still have 25-30% of your parents money into the deals due to the lenders LTV requirements.

This can be structured many ways, but my input if you plan to hold long term it:

 1) Borrow the cash to buy the properties cash then refinance. On a $200,000 deal, you will initially owe your parents $200,000. When you refinance you will owe the bank $150,000 and still owe your parents $50,000. Pay your parents back an interest only payment of $333.33 per month, which would be a respectable 8% (Pay them the same 8% on the $200,000 until you are able to refinance or sell)

2) Borrower the cash to buy the properties and then never refinance, if your parents are in a position where they don't need the capital back and they have much more capital to deploy. In this event, I'd structure the deal much more like a traditional lender with a fully amortized long term loan in place.