What Terms do you offer your investors?

Question

Hi Everyone!

I've started teaching out to those in my network to gauge interest in partnering and investing with me. I'm very curious as to what terms you offer investors in a deal? Partners? Is it a flat interest rate? Do you offer a a split of the cash flow? Under what scenarios would you offer which terms?

Hopefully not too many questions. I want to document these options so I can better systemize my investors process long term.

As always any feedback is greatly appreciated!

Regards.

Bhanu

Andy Mirza · Answer

@Bhanu Kuna For our investment Funds, we offer our investors an 8% preferred return and 50% of the profit. We, as the sponsors, get a 2% management fee along the way and the other 50% of the profits.

I also have some rentals and am paying a private lender 6% interest only for 4 years. He is very risk averse and extremely happy with the results.

The main question to ask is do you want debt or equity partners? Maybe both? I highly suggest to take on equity partners. When you take on too much debt without having the means to meet your obligations if things go bad, you can put yourself in a bad spot. With equity partners, they share in the upside but also the downside as well. Better for you to make a smaller profit and cap your downside risk, in my opinion.

Andrea Weule · Answer

Personally, I'm a private money girl.  I like to keep sole ownership of our properties and LLC's.  Depending on the length of the deal I offer varying interest rates.  On a deal that I'm going to hold and I want financing for at least 3 years, I'll offer 6% with no points.  On a flip deal that I only need funds for 6 months or less, I'll offer 8  - 12% depending on the amount of money, etc.

I know there are many other options, but they always seem to muddy the waters come tax time and I like to keep things as simple/clean as possible.