My partner is providing 50% of the down payment and signing with me. What is a good return for him?
I will be matching his 50% and we will also split the initial cost on the remodel. He will be totally hands off. I will remodel, manage, and refinance.
What terms should I approach him with to make the deal worth his time?
A few things I’m considering. Use his money to get the property up and running then buy him out. Keep him on and pay him a monthly percentage of profit.
If you were only providing cash what would you need to entice you to invest in a proven trusted friend who has a positive track record of rentals vs just investing in the stock market?
@Chris Mcdonald I see that you're in California so I'm assuming that a deal would be taking place in California. I recently became aware of the law in California pertaining to how much interest can be charged. Check it out here: https://www.yourlegalcorner.com/articles.asp?cat=emp&id=97
You'll need to consult with someone more knowledgeable than I but it's something to consider.
In regards to your question, why not keep the first deal simple and have everything be 50/50? And then if you're able to refinance all the money out, then you keep a 70/30 split of the monthly cash flow and future equity of the property.
You mention that you will refinance so I'm assuming you will be able to pull all of the initial cash out of the property. In my eyes, if you're able to perform a BRRR successfully and the friend will get their money back and then have monthly cash flow and 12.5% equity in a California property, then you're offering them a great deal. In return, you get more equity and cash flow after refinance.
@Chris Mcdonald Have you asked your friend what he thinks is a good return? I'd start there. It sounds like you have a specific person in mind. Also, what are his goals? Go through a few scenarios with him. Don't be too greedy the first time around.
I'm also glad that in the body of the text you say "partner" not "investor" as you do in the subject of the post. If this person is going to own 50% of your LLC, and is not a limited partner then I wouldn't consider it an "investor".
Thanks. I'm actually just planning ahead for number 3 and 4. I have a pretty good chunk of cash from my first BRRR but afraid I'll start running low on cash in 12-18 months. Appreciate the feedback.
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