Rental Property Investments
My husband and I are new to investing but have experience in rehabbing/contracting. We are looking for rentals that might need a little work and hoping to have 1-2 silent investors assist us on the down payment. We are young and many of our young friends have shared interest in investing.
If for example we bought a rental for $100,000 and we put down 10,000 and our other 2 investors put in $5,000 each, how would you recommended paying them so that it benefits everyone? We would be doing all the work and management. Thanks in advance!
Quote from @Raelynn Menard:
My husband and I are new to investing but have experience in rehabbing/contracting. We are looking for rentals that might need a little work and hoping to have 1-2 silent investors assist us on the down payment. We are young and many of our young friends have shared interest in investing.
If for example we bought a rental for $100,000 and we put down 10,000 and our other 2 investors put in $5,000 each, how would you recommended paying them so that it benefits everyone? We would be doing all the work and management. Thanks in advance!
Sounds like you are looking for silent investors and or hard money loans. You would normally pay them interest over time. $10,000 at 12% interest over 12 months... for example.
If for example we bought a rental for $100,000 and we put down 10,000 and our other 2 investors put in $5,000 each, how would you recommended paying them so that it benefits everyone? We would be doing all the work and management.
This is a fairly common structure in real estate, but it's essentially a question for your other 2 investors.
That is to say, what do you feel is fair and what will they agree to?
great job finding private money! easiest way is to just pay them a rate of return. for 5k each i wouldnt be giving up any equity if i didnt have to. run the numbers and see what you can afford to pay them in interest.
just a thought, may be worth looking into hard money. if youre looking for something that needs work, i know my guy will do 100% of rehab. if you are raising just enough to get into the deal, you do not want to go into the rehab having spent all your money. happy to share more thoughts.
Quote from @Raelynn Menard:
My husband and I are new to investing but have experience in rehabbing/contracting. We are looking for rentals that might need a little work and hoping to have 1-2 silent investors assist us on the down payment. We are young and many of our young friends have shared interest in investing.
If for example we bought a rental for $100,000 and we put down 10,000 and our other 2 investors put in $5,000 each, how would you recommended paying them so that it benefits everyone? We would be doing all the work and management. Thanks in advance!
The simplest answer: each participant gets a percentage of the income based on the percentage they put in. If you pay 10% and another person pays 10%, you would both be 50% owners and each get 50% of all profit. With a 10/5/5 split, you would get 50% and they would each get 25%.
Also consider who pays for repairs! If you need more money to replace the roof or deal with another expense, your agreement should spell out who pays for it based on the same split as the profit. Need a $10,000 roof? You pay $5,000 and the other investors each pay $2,500.
You can also calculate based on participation. For example, you may be the one that found the property, negotiated the deal, handled inspections, closed the sale, coordinated with vendors to fix the place up, marketed, screened applications, put them under contract, collected rent, etc. Shouldn't you be paid for all that work? In this case, my recommendation is you have separate processes for payment:
1. You get paid for the work you've done before any profit is paid out. You'll have to negotiate if this is a flat dollar amount, percentage, etc.
2. After you've been paid for your work, then whatever is left over can be considered profit and split according to investment percentages.
Should everyone be legally binded by a contract? How does that work @Nathan Gesner?
Quote from @Khoi Nguyen:
Should everyone be legally binded by a contract? How does that work @Nathan Gesner?
You should have a written agreement with anyone involved, whether they just contribute money or they are contributing money and labor. You don't want to have any misunderstanding.