Fixed interest or a 50/50 equity split: how do you structure private money?

Question

When bringing private capital into a deal, operators seem split right down the middle.

Some strictly borrow on a promissory note at a flat interest rate (say 10% to 12% annualized). If the project sits on the market an extra two months or has minor hiccups, the interest meter keeps running, but if the deal knocks it out of the park, they keep every dollar of the upside.

Other operators prefer giving up a 50/50 or 60/40 profit split. You sacrifice a huge chunk of your margin on a home run, but the partner shares downside exposure, and you aren't sweating fixed monthly debt service if trade delays drag out the timeline.

If you’re raising private money or lending it out on deals right now—which structure do you prefer, and where do you draw the line?

Chris Seveney · Answer

It depends on your experience and how comfortable you are. When I got started, I was doing 60/40 splits where I was giving up 60%. Once I fine-tuned my models and got more experience, I eventually flipped it over to a preferred return. It is much easier to sell an equity split than it is a preferred return in most instances, so if you're just getting started, I would do an equity split.

Matthew Morrow · Answer

@Alejandro Lopez I'd let the deal decide. On a predictable project where you know the rehab and the exit, a fixed note usually keeps more of the upside with you and keeps the relationship simple. An equity split makes more sense when the lender is taking real risk or bringing more than money. Whichever you use, put it in writing with a note and mortgage, spell out what happens if the timeline slips, and have an attorney draw it up. Most partnership problems I've heard about started with something nobody wrote down. Hope that helps.

Erik Estrada · Answer

Are you structuring this as a 100% private funding purchase? (outside investor, not hard money?)

Divin Kanyama · Answer

@Alejandro Lopez I don’t think one structure is always better—it depends on how predictable the project is and who is actually taking the risk.

For a straightforward deal with a conservative basis, clear scope, strong reserves, and multiple exits, fixed-rate debt can make sense. The operator keeps the upside, but must be able to carry the interest if construction or resale takes longer than expected. I would not use debt if repayment depends on hitting an aggressive timeline or best-case sale price.

A profit split may fit a more uncertain or complex project because the capital partner shares the outcome. But “sharing downside” must be clearly defined: who covers overruns, whether the investor receives preferred returns or capital back first, who controls major decisions, and what happens if additional money is needed.

My line would be this: use debt when cash flow and repayment are highly supportable under conservative assumptions; use equity when uncertainty is high enough that fixed obligations could endanger the project. Either way, the agreement should clearly address collateral, guarantees, reporting, decision rights, overruns, distributions, and the exit plan. The cheapest capital is not always the safest capital.

Richard Neese · Answer

I'm a big advocate for controlling the deal. I know what my tolerances are and am willing to do whatever to make it work. I have around 5-8 private money lenders that we use as part of our capital stack. Usually bridge lending that gets us through the construction and leasing process if we are holding or all the way through the flip process. I try to find people that know and trust me and have passive money in a CD or something like that. then i pitch the deal and tell them they'll get a mortgage and promissory note. Good luck in the adventure !

Fixed interest or a 50/50 equity split: how do you structure private money?

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