I am looking to borrow money from friends and family for our next park purchase. As far as structuring the loans what are the terms that are received well by your investors and working for you? Interest only? Length and rate? We are looking to keep the park(s) only about 2-3 years after making improvements, infill and rent increases. Thank you in advance
due to the risk involved, your investors will profits distributed as dividends usually quarterly. Normally the investors will receive a majority of the profits until they receive their original investment. At that time profits are split 50/50.when a refinance or sale happens, investors normally receive profits at a percentage equal to the original investment.the ones putting up the money are taking the risk and should be rewarded as such. you have no risk and only upside, you should not get all the rewards with no riskjust my opinion … the successful mhp funds work this way
Terms for money from ‘friends and family’ are radically different than terms for money invested in ‘professional funds’ like the ones Frank & Dave or my partner and I run. Friends and family will often lend on much better terms to you as the borrower. It is entirely possible to borrow money at 2% - 4% from friends and family if they view you as a low-risk borrower, and their money is otherwise just sitting in a bank earning 1%. (See https://www.nationalfamilymortgage.com/afr-rates/ for minimum interest your friends and family must be paid lest the money be deemed a gift.) Funds like ours, with arms-length investors, typically pay around 15% per year to investors.Your mileage (and friends and family) may vary,-jl-P.S. Slight correction - even professional funds may well have risk in a deal even if all equity money raised comes from limited partners. Many professional funds personally guarantee the mortgage. That is meaningful skin in the game. My 2 cents worth.
Remember to register your deal with the SEC.
I’m trying to structure my first purchase. My problem when talking to private money lenders is how long will their funds be tied up? Short of finding the proverbial IRA lender who wants many year loans, most lenders want 2-5yr at most. Most now are willing to lend at 8% but the problem has been how to cash them out?An old timer investor / advisor suggested the following. I’d be interested in hearing how others structure deals that take in short term lenders to cover some or all of the down payment with the rest being owner financing.The root problem is that at a 10% cap rate there isn’t enough cash flow to pay debt service on both the owner financing AND a private lender. There would be at 15% cap… but getting a seller to accept that offer is a hurdle.Round numbers: $1M asking, 10% cap is $100k NOI or $8333/mo. Borrow $200k from a lender fully amortizing at 8% for 5yrs is: $4k/mo80% owner financing at 5% is $800k at 5% 25yr am is: $4.6k/moIt would be negative cash flow if both debt services where paid concurrently. Meaning owner financing debt is paid starting on month 1.Structure: Prepay $200k to the seller as they want, but make this pre-payment of P&I. Then month 1 you just pay on the private lenders 5yr fully am note at $4k/mo, then yr 6 month 1 start paying on the owner financed note.I don’;t have the numbers lining up perfectly in this example. The slight of hand is that this offer is actually 100% owner financing and $200k prepaid is 96months or 8 years. In a real offer I would juggle the down amount borrowed and owner financing interest rate to have the own financed note start paying right after the private lenders note pays off.It’s actually simple. The notes pay sequentially not concurrently so as to leave cash flow off the property to pay for improvements and build a reserve. In reality my partner and I are contributing cash into this deal but it will be for the reserve account day 1.Any other way to structure a deal so as to leave a decent amount of monthly cash flow that uses private investors for the down payment?
If you’re going to be flipping the park after 2-3 years anyway, why make the (private, friends/family) first loan fully amortizing? Why not put it on a 25 year am also? Pay the principal back when you sell. (Provided you can negotiate such).Brandon@Sandell
I want to own and operate my parks for the income so I’m struggling for a structure that works. The above is the only tactic I’ve found. I’m sure there’s others.