Deal funding from family/friends

7 Replies

Hi there, so I have a question on asking for funding on deals from interested family and/or friends. How have you all approached them the first time? How was the deal/contract structured? I’ve heard Brandon say he’s done it where he’s brought the deal to the table. They brought 100% of the funding and they all just split the profits/cash flow 50/50. Does that mean if you brought bring the deal to the table and you have half of the needed funding, in the end your split the cash flow 25/75? Thank you so much for sharing your experience! I’m learning so much from everyone on here, y’all rock!

@Colby Fuller It depends on the deal and everyone's needs. If it is a short term investment (flip, BRRRR, etc) you can just borrow the $ at a decent rate (8-12%). I borrowed 50% of my first deal from family at 10%. As I have proven myself and the returns, I have lowered the interest. If it is a long term investment, you can structure a % cash flow. My family members were not prepared for a long term investment in the beginning because I did not have a track record. Now they are happy to invest long term. You can structure it in a way that works for everyone. There are tons of ways to do it. I hope that helps.

As noted it depends however if you are going this route you should first have a proven track record of success in investing.

You never want to risk the money of family or friends until you have proven to yourself and others that you can truly be successful.

Real estate investing is very high risk. Do not place others at risk until you have taken the risk yourself and have proven success.

@Chela O'Connor, thank you very much for just to make sure I'm following you correctly, when you borrowed 50% of your first deal from family at 10% interest, were you only paying them back monthly at that interest rate and not splitting the profits/cash flow with them as well?  And was that 10% annually?  Hypothetically (seeing figures helps me visualize things) say you borrowed $40,000 from your family.  With you and your family agreeing to 10%, which is $4,000 annually, does that mean you would have paid them about $333 a month?       

Thank you @Thomas S. for the sound advice!  I'm deffentely with you on that. 

@Colby Fuller, Yes, it was 10% annually with interest only monthly payments for 12 months and full principal at the end. It was in a written promissory note.

If you do decide to borrow from family be very careful, be sure they want to lend money and you are not pressuring them.  Also get everything in writing to make sure all terms are clear, it is not worth losing family or friends to make a couple bucks.

It also depends on how involved they'll be. In Brandon's examples, he does 100% of the work. They only supply the money. 

With your friends/family, they may want to be involved on the first one, and you could still split it 50/50 if you're both paying equal shares. 

You've likely heard this before, but it's easier to find the deal first, then find the money. To illustrate this point, here are two scenarios:

Scenario A: Hi family member, I'm thinking of investing in real estate. Will you lend me money to to try it out?

Scenario B: Hi family member, I found this deal that I'm going to make X on in Y amount of time (for a flip). Or, I found this deal I'm going to make X% return per year on my cash (buy/hold). Do you know anyone who would like to partner with me on the deal?

If you can show someone the numbers from an actual deal you have in hand, they'll be much more likely to partner with you. It's now tangible. In scenario A, you'll likely get them scared first, and that could prevent them from ever considering it. In scenario B, their first emotion will likely be excitement. 

Like was mentioned above, don't pressure anyone to invest with you. Mention the opportunity and leave it at that. If they're interested, let them come to you. That's why I like the question in scenario B so much. You're not even asking them for money, only for a referral. They'll likely want to invest themselves and will be the one asking you for the partnership, not the other way around. 

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