One of the frequently asked question is how much to pay private investors. To me that question is directly related to the relationship that I have with that investor. I have presently two kinds of private investors in my group.

The first group is completely passive – they really don’t care what I am buying and selling at any given time. These are people whom I started with four years ago, when I first entered into this private money arena. They are more interested in the rate of return which in my universe is directly proportional to the amount of money they want to invest.

A good model could be :
$0-$25,000 - 9% Annual ROI
$25,001 - $50,000 - 12% ROI
$50,001 - $100,000 - 15% ROI

Anything over $100,000 has to be negotiated on case by case and more importantly how much can you make on in your real estate business. I can pay 20% without blinking.

The second group is more active. They like to evalutate deals and do only the ones that fit their criteria. They are more active in the business and like to get periodic updates. Their returns coming from me are pretty much identical to the first group with one marked difference. Their money is very short term and hence they usually get paid 1% to 2% less than the first group.

I would not advise you to ponder too much about this. Look at your deal – realistically calculate how much you will make out of it and then work from there.

Don’t make the mistake of thinking that a private investor is doing you a favor. This is a marriage of equals. They are looking for a great, secure, above market return. You need their excess cash to make deals happen. Treat them right and you have your own virtual bank. Treat them wrong and pretty soon you will be back to hard money. It is as simple as that.