Joint Ventures vs Promissory Notes for Residential Rental Investment
Under the structure of an LLC Partnership, I am looking to partner with Investors starting with Residential Rentals through DSCR loan products. For the first couple of deals I anticipate smaller contributions from up to 5 Investors including my own Company in order to attain 20% down and secure the property.
I want to make the terms for Investors as attractive as possible but need some input on the following questions:
Are Promissory Notes or Joint Venture Agreements preferable for deals with multiple Investors and only 1 Operator?
Is it common to offer interest rates on the principal investment? What would be a reasonable interest rate?
Are interest rates beyond a certain point considered Usury or is that only from traditional lenders?
As far as repayment to the Investors, would it be best to make interest only payments until the interest is paid out and then begin to pay down the principal balance? Is this typically done from the rental cash flow on a monthly basis?
What is a typical repayment period that Investors target? 5-10 years? Sooner?
Are Investor/Operator splits common and at what percentages?
Is it common to assign the property as collateral for Investors?
Does recording a Collateral Assignment Agreement interfere with refinancing?
So many questions, I realize some of these questions are highly dependent on price points and the market and etc but I appreciate anyone who takes the time to give me some general insight. Thank you!!