How do I get investors their $5000 back?

21 Replies

They are going to want the $5,000 at some point it depends on how you set it up, did they give you a loan or did they buy equity in something.  Frankly I'm surprised someone gave you money without knowing what they were investing in.  If a loan they probably want a monthly payment unless it is a balloon loan.

Eligah,

Is this friends & family or arms length? Is there a contract (verbal / prospectus / partnership)? How long have you held onto their funds? Were the funds held in an interest bearing account?

If there is a contract, the contract should cover this situation and should be complied with. If there is no contract, then it is really your discression but if it were me and I earned any interest, I would pay it out. Having  said that, $5K @ 2% over 6 months is $25 and probably not meaninful to the investor. lt is more about being upfront / transparent.

Oren

agreed with aaron. it would be whatever the terms of the agreement. if friends/family it could be just want their 5k back no imterest. either lump sum or payments. it could have been interest only with a balloon. there are many options.

Originally posted by @Aaron K. :

They are going to want the $5,000 at some point it depends on how you set it up, did they give you a loan or did they buy equity in something.  Frankly I'm surprised someone gave you money without knowing what they were investing in.  If a loan they probably want a monthly payment unless it is a balloon loan.

They have not given it to me yet. But they are willing to because of my businesses in the past.

Regardless you need to determine along with whoever you are borrowing from what you want to do, loans are the most common but partnerships are not unheard of, however if you are raising small amounts from a lot of people you may need to talk to a lawyer to make sure you are following SEC rules.

Deposit always stays with escrow or 3rd party. You can not touch it as it is called commingling. If you have offered EMD and seller accepted the offer contract, depends on the terms and local law you need a rectified contract seeking for refund.

@Elijah Glenn you are fortunate to have funding, I would clearly define the terms and expectations with your investors as soon as possible. They probably expect interest and the defined payback period. You want to make sure your goals and theirs alien. In this market, a long term hold would be hardest to pay back quick, a BRRR would work if you are confident in your ability to identify a good deal and capitalize on value add opportunities. A flip would be your quickest option, again if you are confident. Best of luck!

@Elijah Glenn

I actually borrowed money from friends and families for my first RE deal. It depends on your family, but in my case, we're really close so they don't charge me interest. I simply paid it out full 3-6 months later. 

I think you are asking 2 separate questions.

1) How should I invest $50k of investors money?

It depends on your risk tolerance and timeframe of investment. If you want short term returns, then flipping distressed properties may be your best route. If you are looking for long term returns, then brrrr may be your best route.

2) How do I pay back my investors?

It depends on what answer you choose to the first question. For a short term flips you may negotiate a percentage of the profit, a flat fee, or an interest rate. For long term rentals, you should determine terms for a loan or an equity structure for your Investors.

You should come up with a clear plan and determine each Investors expectations before taking any money.

@Elijah Glenn I totally misunderstood your question. How quickly will they want their money back? If they need it back in, say, less than a year, then the BRRRR strategy can accomplish that. Buy a distressed property, fix it rent it, then refinance it and pay them back. You could also do a simple fix and flip to get them paid back quickly. If they dont mind lending longer term, a turnkey could work, where you pay the loan back monthly with extra cashflow.

Before taking on any investor money you need to develop a plan to use and eventually return the money. You should never take on debt if you have no plan for how to utilize it.

Originally posted by @Jason D. :
@Elijah Glenn I totally misunderstood your question. How quickly will they want their money back? If they need it back in, say, less than a year, then the BRRRR strategy can accomplish that. Buy a distressed property, fix it rent it, then refinance it and pay them back. You could also do a simple fix and flip to get them paid back quickly. If they dont mind lending longer term, a turnkey could work, where you pay the loan back monthly with extra cashflow.

 Thanks, I didn't know I could do that.

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