About to BRRRR, what do you pay out your investors?

11 Replies

I'm looking to do my first BRRRR and have several investors. What are you strategies as far as paying them back?

Do you rehab, refi, and pay them principal plus percentage?

Do you 1031 and keep all the money growing and payout quarterly?

I'm not really sure what's the best way or should I leave to each investor on how they feel comfortable investing?

Thanks for your advice!!

My "investors", who are mostly friends and family, work with me in a private lender capacity. I pay them slightly below what I'd pay for hard money. Beyond that I treat them like any other lender: we write the loan amount and terms into a contract. They wire the funds to the title company prior to closing. We record the the loan in a deed of trust on the property and I also name them as the lien holder on my insurance.

To give myself plenty of room because life happens I've been doing 12 month terms with them but am generally doing a cash out refi 3 to 4 months after purchase for a BRRRR at which point they are paid off, again by the title company. Their money never touches my bank account.

They're happy because they're getting great returns, I'm happy because I'm getting less expensive short term loans. And I'm trying my best to keep their money working for them. So far it's been great.

@William Lindsey   Both strategies are acceptable but you would be best served to discuss what your investors are looking for in this deal.  If they want our quickly then the refi option would be best.  Or they let the money roll you can offer a percentage of profits.  

A loan structure would be the simplest and the one I use as it makes things very clean and clear for all.  

If this is your first couple deals with them or at all simple is better even if you pay a little more to get the experience and their confidence in you as an investor.

@William Lindsey

Cash-out refinance.

HELOC to access equity.

Make payments to them like you would any other lender.

Not sure of others. Folks here have some good suggestions. I've never done BRRRR, just FYI.

@William Lindsey If your strategy is to hold after the refi, I'd keep it simple and pay them like a bank with perhaps an origination fee as a bonus.  If your exit is to sell, then you can think about splitting equity at the end. But most people just want steady cashflow. Ask what they want :)

@William Lindsey Using other people's money is a great strategy in growing a real estate portfolio.  However, you must be very careful that you do not do it illegally or unwisely.  You can break security laws unintentionally which could equal large fines and/or prison time.  So here is what I would suggest:

1. If you are bringing in more than one person in on a single deal, then you create an LLC with them on one deal. Have the operating agreement explain the deal, the money splits, etc. Or you can create a syndication.

2. If they just want to be a lender in a lending capacity, then have them lend you money for a deal and they get a specific interest rate.  

3. Don't mingle investor money in accounts or among deals.  This is usually one of the biggest things that will get you into trouble.  

I have worked with over 50 private money lenders and have raised above 1.5 million for real estate deals.  But the way that I do it without a syndication is I will have a hard money lender pay for the majority of a property, and then I will have a private money lender come in in second position on a deal and they will lend in second position and get a promissory note and a deed of trust on the property.  This ties their money to collateral.  Then they just get a straight interest rate of 8, 9, or 10% depending on the deal.

Good luck.