Joined: 31 Aug 2016
I have an opportunity to invest money into a neighbors landscape startup business so that he may purchase some startup equipment (trimmers, mower, trailer, etc.). I am expecting about $2,500 initially. My Question is the payback strategy? I originally figured I could take a percentage of profits that he makes on his customers plus free landscaping work at my house, but how much? and for how long? I was also thinking a straight loan? Anyway, would appreciate any thoughts or shared experiences on how it can be mutually beneficial for both of us, and if possible, how my return can even grow over time.
Wed Aug 31, 2016 5:44 pm
oldguy Senior Member
Cash: $ 715.40
Joined: 21 May 2006
No, don't even think about sharing "profit/earnings" with the neighbor. Defining expenses, earnings, capitalizing new equipment, will be a nightmare. The straight loan is workable - if you think of it as a Venture Loan that you may or may not get back.
Here is the First Rule of Landlording - "never rent to a co-worker, and acquaintance, a friend, and never ever to a relative, you need a formal arm's length agreement with a STRANGER". This rule can also be applied to many things - selecting a realtor (old uncle ned used to sell houses, talk to him), a mechanic (old george can fix anything, don't bother with a dealership), a plumber, and so on.
Your neighbor is at least an acquaintance, maybe a friend - otherwise he would not have hit you up for a loan. So - if you lend him the money, put it in writing, have a formal interest rate, say 12%/yr. And a repayment plan - ie, require that he pay the interest on the first of every month ($25 in the case of a $2500 note.)
Both you and he have good intentions and you both expect this to work. And it will - but never quite the way either of you expect. Put a time limit on the $2500 principal, say 2 yrs, that gives him some slack - and put down some escape rules - what if he moves away, gets a divorce (will his wife pay?).
But don't be involved in the success of the business, just the loan. If he decides to get a W2 job and quit the business, he still owes you $2500 (and $25/m).
Wed Aug 31, 2016 6:50 pm
ArtsMoneyTalk New Member
Cash: $ 1.40
Joined: 02 Sep 2016
Location: Los Angeles
i don't think he'll go for profit sharing so that's a long shot. i'd focus on the payback period and interest you can get for the loan. typical rates are 6-9% for personal loans you can get at the bank. i'd try to go for a higher rate if you can get it. most people aren't going to like it if you make them sign a contract but if you're unsure about getting paid back you might want to just have it in writing in case things get ugly. maybe you can even take something he owns as collateral in case he decides not to pay. it really depends on your relationship with your neighbor.