I am in the process of starting a LLC in Texas. I have received verbal commitments from several coworkers to make some serious contributions to my real estate company. What are good ways to borrow/invest with them? How should I structure the notes? Should I consider making them members?
My plan is to buy distressed properties 40-60% discounted, rehab 10-30% but never spending more than 70% LTV. Monthly rents should be around 2% of the purchase price.
Let’s say I have found a 100,000 property and I plan on buying it for 50,000 and rehabbing 20k.
I have 25k to invest and the other 45k is held by these private investors. Any thoughts?
What kind of returns are these coworkers expecting for thier investment?
You could do it either way, debt or equity position. I would think debt is better if your coworkers won’t have anything to do with the investment other than putting up cash? You can fix a interest rate like 8% paid at the end of the project plus maybe 5 to 10% to each as a royalty on there investment!
This way you make the lions share for doing the work, but the investors get better returns than just intererest!
if your planning on holding them for rentals why not use the investors for purchase price and rehab, then refinance to conventional when you a property rented.
Pay your investors 2 or 3 points, plus maybe 10% interest (the interest doesn’t matter, you should be out of that loan in a month or two).
Remember that a house thats $50k needing $25k in repairs should be considered more expensive (all things being equal) than one thats $70k with a rehab budget of $5k because of the potential cost overruns and less downtime for the rehab.
Fixing a rate is better than disclosing your plans to the others. Moreover, you can get many legal advisers in your area who can give satisfactory responses to you.