Investor

Hi CY,

Let’s have a go at answering some of your questions…

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1. What is commonly agreed between you & investor ? Is it 50-50 split, or do you just ‘promise’ him say 14% return?

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I don’t think there is an absolute standard as to what to expect, but in my opinion I think 50:50 is the default. I think it’s more about find out what the investor is looking for and then offer it. If they want a red Commodore, then give them a red Commodore. As for a % return, the normal ‘run of the mill’ investors seem to have a fixation with 10%.

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2. Do we need to draw a written agreement ? What sort of guarantee do I need to offer to investor- this is to make sure that I don’t run & take his money.

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Yes, definitely! Agreements are not for good times but for bad times. I would draw up a Heads of Agreement in bullet point form and then get a solicitor to formalise it.

Make sure you cover situation for the share of profits and losses.

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3. What is the ‘minimum’ (if any) period that he must NOT take the principal back. Eg he gave me 30k , then if he want the all the money back (pulling off) in 3 months. I would be in trouble coz the monies is tied up in the deal.

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That’s why you have an agreement that spells out what has to happen in order to get the money out. Personally, I’d say the investor has his/her money tied up for the length of the deal.

This is why some wrap investors only do 5 year loan terms and seek to have the client pay them out.

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Lets look at the numbers
Purchase prop 70k
LVR 80% – Loan 56k
Deposit 14k
Closing cost4k
Money upfront (investor pays) 18k

Sell (wrap) for 85k
Deposit from wrap buyer 7k- this leaves investor with net outlay 11k
Assuming spread 250 pm or 3000 pa(2% interest spread)

Now if I want 50-50 split, then ROI for Investor = 1500/ 11000 = 13.6%

I thought 14% is a bit low for investor ??? what am I missing here?? How should I make it more attractive?

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It all depends on what the investor can get elsewhere. 13.6% is a lot better than 4% for low risk. But you’ll never know unless you ask people what they want! It doesn’t matter what you want when you need someone else’s money. Golden rule – he who has the gold makes the rules!

Regards,

Steve McKnight