The idea behind the split was that if our funding platforms stalled (Which they have at times) we would still be able to approach a larger VC partner, sell equity and continue funding. The 70% cut has worked out for both sides. I have one of the highest returns out of the 30-40 companies that funded when we did. Something like 30 of them have already gone under, 1 has a return somewhere along the lines of half of what we do.
Right now we're at around $400k of funding so far, $300k has been utilized, market value of $450k-$500k with a monthly gross income of around $4250 which should increase to $6100 once we're at full occupancy (7 of 10 units are occupied, the last 3 are in rehab).
My interim goal that wasn't mentioned on the biz plan is to complete 2 flips this year. It would bump our investor return up significantly.
Assuming funding stalls, why not issue more shares at that time?
With your current numbers you're simply ripping off your investors. The returns they're getting is not worth the implied risk. Note: I admire your ability to convince investors that they're making good returns, however let's be honest -- they're not.
Based on your numbers:
$400k raised
$6.1k gross income -- assuming 100% occupancy.
6.1*12 = $73.2k gross annual income
$73.2*.3 = $21.96 going to the investors
assuming expenses of $0, then their return equals $21.96/400 = 5.49%
Seeing as the risk with such an investment is insanely high (30 of the 40 companies went under), a 5.49% return is nowhere close to justified.
Furthermore, when you calculate expenses + income tax, then it's likely your "investors" will get slightly above a 2% return.
...
With that said, let's calculate your assumed profit for this year:
$73.2*.7 = $51.24k in rental income. Obviously expenses have to be deducted from this, but let's assume you're left with $20k.
On top of that, you now own $450k in assets. $450k * .7 = $315k.
So far this year you've earned $315k + $20k = $335k. Your investors on the other hand have not.
Once again, I admire your hustle.
