How much to pay passive investors in my flips?

[Alex Monaco]

Hey all,

I am beginning to come across more and more fix and flip opportunities. I use a hard money lender for the purchase and the rehab. I typically need to bring $75K-$100K to the deal for the down payment. I would like to start raising private capital to help with that cost so that I can do more. What do you think is reasonable to pay as a return. Any investments I would receive would be strictly passive. I am finding the deal and handling it all. I have heard 10% return is good. What do you think?

[Charles Carillo]

@Alex Monaco

I would offer a little less than what you pay a hard money lender. You can then save on all the normal hard money lender fees, and the private lenders make an investment secured by real estate.

One last thing is to be careful with the words "passive." When you mention an investment is "passive," it may start sounding like you are setting up a security (a syndication). I would say that you explain to the investors that they will be investing in one property (funds will not be commingled), and they will hold a mortgage against the property while receiving a fixed interest rate paid monthly or upon sale.