What are different way to structre debt?

Question

Hi all,

I am in the process of raising capital to fund the down payment portion of a seller financed deal. Without getting into too many specifics, I am looking to raise 50k. The property is not a value add but is a buy and hold... great location, cash cow, off market ect.

There are many ways to amortize the debt but, I am looking for suggestions on what people may have done in the past that has worked well? After speaking with a few private investors who are interested, I have ended up somewhere in the range of either 10k note @10% IRR amortized over 24 months. Another option is 10k note @15% amortized over 24 month which is obviously more advantageous. I appreciate all the suggestions- thanks in advance.

Alina Trigub · Answer

@Michael Doherty

The terms you suggested seem to be within a range. There's no set agreement, it is basically whatever the parties agreed upon. Also, it sounds like the lender would be in the first position, which hopefully entails that the note would be backed by the property.

Tom S. · Answer

@Michael Doherty  Gotcha, that makes sense.  Good luck on the potential deal!

Michael Doherty · Answer

@Tom S. 100% agree with you that interest only is much simpler and easy to draw up however, with this not being value add deal I don't suspect there will be enough equity to refi and pay off the debt (50k). I suppose you could just keep putting away the money each month away as if you had to make monthly principal and interest payments. That way at the end, all your are left with is just principal to pay back but you saved each month for it so it's not such a burden.

Tom S. · Answer

@Michael Doherty Any short term notes like 1 or  2 years I generally just do as interest only.  Much simpler for both parties.  So $10k note @ 12% = $100 per month in interest, and $10k due back in 2 years, as an example.

Also the seller financed note would be in 1st position.  Use a good attorney to deal with the pooling of $10k notes for the $50k downpayment, to make sure the "pooling" of money is all legal, and how to secure it (or leave it unsecured).

- Tom

What are different way to structre debt?

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