Is this a fair offer?

Question

Hi all!

We're approaching the point where we can bring on partners in our investment journey.

My question to you fine folks - is this a fair structure you would be interested in? If not, what should I adjust to make it a fair offer for both sides?

Inverstor puts in around $70k to $100k for purchase/refinance

We get a rehab loan & purchase a sub-$200k property

We manage all rehab & refinance afterwards

Pay back the investor full loan amount (or gets all net proceeds of rent until principal is repaid)

Rent out property after refinance (avg. $350 net cash flow)

We keep all rental income, we split equity 50/50

Area avg. equity growth around 4% to 6% conservatively (normalized for early-2020s high)

Minimum 5 year hold then refinance them out or sell (we plan on holding 15+  years)

Would love your thoughts here.

Thanks in advance.

Leo Leiva · Answer

Your offer is fair for someone who wants to be passive and believes in the long-term equity upside. But to appeal to a broader base, adding either:

A preferred return, A share of ongoing cash flow, or Security (like a lien)

It'll help make the structure more investor-friendly.

Hope that opinion helps.

Bill B. · Answer

Am I reading this correctly?

The investor gives you $100k. Some day in the future they get their money back with zero interest. For 5 years you get all the income their investment purchased

5 years later they get 1/2 the equity their investment purchased?

Assuming 3-4% appreciation  they will get 1/2 of 15-17% gain, before 6-10% in selling costs, after 5 years? So 1/2 of 5-11% in 5 years? You are talking about 2.5-5.5% on “less than $200k property” so $5-$11k? 5 years from now? Sounds a little worse than a bank CD.  What if the value goes down? Or goes up less than selling costs? (Say it only goes up 1% per year.) Do you kick in 1/2 the loss or do they get all the loss?

So you get all the rent and 1/2 the equity with zero risk? I wouldn’t mention that part. It’s a lot easier if you just find a partner based on percentages. You each put in a certain percent and get that percent of the equity and rent. Good luck.

Chris Seveney · Answer

as mentioned investors will want cash flow and they can invest in larger syndications and get 60-80% of the upside and the manager gets a small management fee (around 1-2%).

Chris Seveney · Answer

monies should always go to investor first.

James McGovern · Answer

@Didier Bizimungu in most loans the lender usually gets a monthly payment. You should provide a higher return for the risk they will take on the deal

James McGovern · Answer

No. Investors need cash flow as well

Deborah Wodell · Answer

awesome discussion

Scott Chilton · Answer

Hi, @Didier BizimunguYou're on the right track, but a few tweaks will make this more attractive and fair to capital partners:

Strengths:

• Clear scope: investor funds acquisition/refi, you handle execution.
• Defined payback: investor repaid first from rent.
• 50/50 equity split gives long-term upside.
• Conservative appreciation expectations.

Clear scope: investor funds acquisition/refi, you handle execution.

Defined payback: investor repaid first from rent.

50/50 equity split gives long-term upside.

Conservative appreciation expectations.

Consider Adjusting:

• Investor Risk vs. Reward:
They're taking 100% of capital risk but only get debt-like returns until repayment, then 50% equity. This skews heavily in your favor.
Fix: Offer preferred equity (e.g., 6–8% pref) plus 50/50 equity split after return of capital.
• Cash Flow Alignment:
You’re keeping 100% of cash flow post-refi. That’s a mismatch if equity is split.
Fix: Share post-refi cash flow until exit or rebalance via waterfall.
• Exit Clarity:
“Refi them out or sell in 5 years” is vague. Investors want defined triggers.
Fix: Specify target return or event (e.g., 2x multiple or 8% IRR triggers exit/refi option).

Investor Risk vs. Reward:
They're taking 100% of capital risk but only get debt-like returns until repayment, then 50% equity. This skews heavily in your favor.

Fix: Offer preferred equity (e.g., 6–8% pref) plus 50/50 equity split after return of capital.

Cash Flow Alignment:
You’re keeping 100% of cash flow post-refi. That’s a mismatch if equity is split.

Fix: Share post-refi cash flow until exit or rebalance via waterfall.

Exit Clarity:
“Refi them out or sell in 5 years” is vague. Investors want defined triggers.

Fix: Specify target return or event (e.g., 2x multiple or 8% IRR triggers exit/refi option).

Didier Bizimungu · Answer

I think I see the consensus here in terms of a final structure. Thanks everyone for the insights!

So in addition to half equity, I would add restructure the rental income in this format:

9% management fee to me or a future manager in case I don't to manage anymore.

For the rest, they get a 40% split of net cash flow vs. my 60%.

I'd love to hear feedback on how that sounds.

Thanks!

Is this a fair offer?

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