Entrepreneur · Duluth, GA · Member since 2015 · 68 posts · 5 votes
I am purchasing a house for $200k and I need to bring in a financial partner to pay about $25k in rehab costs. I expect to generate a profit of about $40k. What percent of the profits should I share with my investment partner?
If I like the numbers and knew the person running the project, had knowledge of DOM for the area etc etc etc then I would be more than happy with putting out 25k and receiving that plus 5k at the end of the deal. Seems a little steep to me but as an investor with the right knowledge of everything I would step into that type of deal any day of the week.
The cash-on-cash numbers for a $5k return on $25k looks like this:
2 months = 120% 3 months = 80% 4 months = 60%
Exactly, every deal my company does needs to see a 50%+ annualized ROI and if approached by someone we knew and had experience with we would gladly lend then money under the proper circumstances.
I don't think anyone here is talking about lending money at 50%+ annualized ROI...
What has been suggested above is equity that results in a large return, not debt. Equity also creates risk for the investor, unlike debt (when done correctly).
I'm not sure there are too many people willing to pay 50%+ annualized return on a loan...though I wish there were! :-)
You would be surprised, under these type of circumstances it happens a lot. However as you said, as an investor I would not go in for equity and only do this as debt for the sheer aspect of liability.
Debt v equity usually comes down to the quality of the deal versus the investors risk tolerance. Serious capital investors need quality deals just as profoundly as flippers need capital. It's the essence of capitalism.
Let's assume that you were to come up with a number and offer it to the investor. One of two things is likely to be the outcome: 1. You offer less than the investor was looking for, and you now you risk appearing as an adversary to him; or 2. You offer more than the investor was looking for, and you negotiate yourself out of some profit.
That's the art of negotiating. What you have outlined above could just as easily happen in the reverse as well.
No, it cannot happen in reverse.
My #1 point above could happen in reverse (the investor could turn you off by offering too little), but my #2 point above could not happen in reverse (the investor could never offer you too much).
That's my point -- when two non-professional negotiators are negotiating, the one who throws out the offer first is generally at a disadvantage without any upside. The other one always has the potential upside that the first offer is higher than what he would have opened with.
I wrote this a long time ago, but the information still holds...read Tip #1 for more info:
I know this sounds silly, but if you are new at this, offer him WHATEVER it takes to do the deal. Make him some coin and you've made a relationship that will last. Show him your results and he'll assume less risk the next time and reduce his requested return, imo.
I know this sounds silly, but if you are new at this, offer him WHATEVER it takes to do the deal. Make him some coin and you've made a relationship that will last. Show him your results and he'll assume less risk the next time and reduce his requested return, imo.
Rich
Like anything else the worse that can happen is the investor says 'no' and you have to pursue another
I usually post this to new people as I remember it being told to me and having it change my mindset.
"Would you rather have 100% of $0 profits because you can't fund the deal and don't wanna pay the costs, or some percentage of $50,000 profits and sharing the wealth as you couldn't do it on your own?"
Before losing the deal, take whatever you can and start that relationship with a money partner and renegotiate as you continue to prove yourself.
Hey @Bobby Holley. Have you looked into Lendingclub.com or Prosper.com? I haven't used them but get literature in the mail every other week, so they are ready to lend super easy. It is peer to peer lending completely based on your credit score. Seems they are offering 6.9% and up. That is based on an Annual Percentage Rate. You and everyone else on here has been talking about doing just a % return that when annualized is possibly double what you would be paying on one of these websites. Both sites will do max of $35k I believe. So if you borrow $25k at 7 or 8% but pay it off in only 4-6 months, you just paid (7%/12) x 6 months. Much better than actually paying for a full year or the 36 month max. Also - Come out to the next Atlanta REIA meeting, and I can introduce you to a bunch of guys who can help you out if you just want to borrow from an investor locally. It is next Monday - November 2. @J Scott used to come to them when he lived down here.