How would you recommend going about talking to friends, family and others about investing in a rehab project. What kind of benefits driven presentation will help raise capital and what kind of returns have you or do you presently offer private money investors in your projects?
Most investors want to hear how you will repay them and if your deals fall to apart do you have a backup to repay the investors.
There is nothing better than having a track record that show positive results. I heard on the last podcast that J Scott has a website showing the results of almost every on of his deals.
I have even heard of people starting off by giving the bulk of the profits to investors to get partnerships started.
@Scott Shafer I agree with Chris that it's best to have some kind of result to show.
It's also important to become the expert/mentor on REI in the circles you want investing with you. Be excited about the deal/opportunity and educate people on REI. They tend to be more receptive than if you were making a sales pitch.
I was surprised when I recently got offers from 2 coworkers to invest in my next acquisition. It started over a lunch conversation about 401k's and retirement. When I told them I invest in buy and hold properties, one of them lit up. He mentioned that he was interested in REI but didn't know how to get started. The rest of the conversation was me giving an intro to REI and answering questions. By the end of lunch I had 2 potential investors.
As far as returns, for a rehab, you will want to give them a timeline of when they can expect their money back. Rates are usually 8-12%.
In the beginning, you will have to give them attractive returns. For a flip, maybe 60/40 profit split. Over time, as you build a track record, it'll be more like 40/60.
I'm working with a private lender for rental properties in Cleveland and am offering them a flat 15% rate of return on invested capital. They hold a note and after 6mp seasoning I do a rats&term to provide them with the bulk of their cash back. Any remaining balance is paid off monthly with "carried interest." Typically 10% gross rent.
Thank you @Joe Gore, @Chris Adams, @Jim Lin, @Zoran M.
I appreciate your comments and taking the time to respond. I think I need to have a detailed hypothetical on paper to be able to talk to people who might be interested in being involved. I don't have a track record so that is out of the picture for now. I'm just in the process of trying to get the ball rolling.
I don't have experience with obtaining private funds, but I have read a lot on the subject.
In terms of your lack if a track record, you should emphasize the years of experience of your "team". (I'll need to do the same when I first start looking for PM)
something like: my GC has been working flips on budget and on time for 15 years, my attorney has worked the paperwork on 100's of these types of transactions, etc... It's about all you can do for your first couple of deals.
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