What actually changes once you bring in a partner or private money for the first time

Question

From my experience, I've used both notes and shared equity, and it really comes down to the opportunity and your own risk profile. Private money gives you more control but tends to cost more, while equity is cheaper upfront but means less control and less upside for you. Would you rather give up equity for a partner's cash, or pay a private lender's rate and keep full control?

Bryce Axelrad · Answer

I’m a lender, but I lend debt and equity so I can be unbiased here. So my first question is how clearly you can see the repayment. If the exit is close and well defined, I’d price the debt over that actual period and compare it with the equity you’re giving up. That being said in the longrun equity will always cost more than debt unless you're dealing with genuine loan sharks.

If the project needs time and the exit is less certain, I’d give more weight to a partner who can stay in the deal. I’d also look at who decides what happens if it runs over budget or needs to be sold. Borrowing doesn’t automatically mean full control, and equity isn’t automatically cheaper. The agreement and the way the deal performs decide that.

Erik Estrada · Answer

You should also keep in mind the shared risk on the equity side. While private money is more expensive, they do not really share the same risk as you. If you default on their loan, they take the property and charge default interest, etc.. A partner risks losing their contributed capital and the deal/property..

What actually changes once you bring in a partner or private money for the first time

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