4 hours ago, gfron1 said:Every day a new adventure! Over the weekend one of my investors said they might prefer buying me a building. So now we're re-opening the door to looking at properties.
On another front, I chatted with a friend who is a retired banker, who is a very active investor. I wanted to find the best strategy to create a win-win with my investors and so he talked me through a few options. Upfront I offered 10% simple interest no later than 3 years from opening. We talked about risk aversion, cash flow and the possibility of having shorter and longer term investment options. We also talked about the difference between a $1000 investment and a $100,000 investment in terms of what the investor could have been doing with that money had it not gone to me. I also wanted to incentivize potential investors to go a bit higher in their offering.
Recognizing the current market, in the end what I've decided to do is:
$1-10k
1 year return: 6%
3 year return: 10% (this was my initial offering)
$10,001-$25k
1 year return: 8%
3 year return: 12.5%
$25,001-above
1 year return: 10%
3 year return: 15%
The natural question by my friend was - why would I go this route when I can get a bank loan around 6% and my thought is twofold. First, compound interest on the 6% is greater. Second, is freedom. I did bank and SBA loans for my previous restaurant and the paperwork was a burden - not the initial paperwork but the ongoing reporting requirements. While I appreciated that SBA loan I would not do it again. Investors with no say or control in the business allows me to do what I need to do, and with my previous track record offers them a relatively low-risk investment with a strong return. In my eyes it's a win-win.
Sorry, this was not clear, if I invest $100K, at the end of 3 years, do I get $115K back, $145K or $152K? It feels like there are other, more sophisticated ways to structure the deal that better align people's interests (profit sharing, convertible notes, collateralization, tranching the debt etc.) but maybe the simplicity of this is what's appealing.
edit: Also, are you creating a separate corporation to buy the building as from running the restaurant? It seems to me that there are investors who can be convinced to invest in a low risk, high collateral real estate deal at substantially lower rates than a high risk, low collateral restaurant venture. Given everything people talk about how the restaurant business is such a low margin business, it seems like just being able to shave a percentage point or two off your payments might mean the difference between untold riches vs being unable to pay your bills.
