I'm considering investing with a couple that I have worked with for about 8 years. They have been (successfully) running a charter business over that time - I was the first employee, they sold the first two boats and have upgraded in size significantly. They are currently considering purchasing an additional large vessel to start a similar operation in another city.
I have two options - I can invest a substantial amount (~33% of my net worth) an become a minority partner, or I can invest a lesser amount (5-10% of my net worth) and become a 2nd tier lender (behind the seller financing from the bank which owns it currently). I'm flying out to inspect the vessel in a few weeks. Subject to the boat being what I expect it to be I have a couple of questions that I'm hoping for some suggestions for.
1. I can withdraw from Roth accounts to about 10% NW, which would be sufficient for this investment, but that would forgo the tax free protection.
2. I can borrow (will begin speaking to banks to find out what rates would be) up to 10%, so that if I lose it all, I can still cover the loan even if I should lose my job.
3. I can borrow a greater amount and become a larger investor (20% NW), and expose myself to the possibility that I can't both lose my job and the investment and pay off the loan quickly without paying withdrawal penalties for other retirement accounts.
4. I can go whole hog, borrow 20% NW, withdraw 10% from Roth, and become partner. The potential would exist for me to draw a salary from the new company, though less that I make as an engineer probably.
They have said that they are willing to secure the loan to them with both the new company and the old, which vastly reduces the risk of lending. My intent is to try to negotiate a fixed + % profit proportional to the investment on the loans, with the fixed greater than my borrow rate should I do that. Right now,depending on what a bank is willing to lend to me at, I'm inclined to option 2. Additional potential would be to approach friends to participate to either reduce my investment exposure to 5% NW or to increase the participation and the risk of any other investors stirring the pot (Assuming that I'd represent our investment group). I suppose that I could also approach friends for a direct loan (contracted, etc - investment loan not a "cause I'm your friend loan") at fixed rate and take the extra investment risk/return personally.
There could be a lot of moving parts and uncertainties with this, but as personal potential. If I wanted to semi-retire soon to running the new operation for a few years, this would probably be a good way to do it - higher risk, but a lot of personal control and payback for sweat invested.
Thoughts and recommendations? Cynicism welcome. I've avoided direct numbers, but if anyone knows roughly what I'm likely to obtain as a rate for $100k or less loan from a bank with high credit rating, only debt mortgage <2x salary, I'd very much like to know prior to talking to banks so that I have a reality check.
Thank you all in advance.
Seabourne
I have two options - I can invest a substantial amount (~33% of my net worth) an become a minority partner, or I can invest a lesser amount (5-10% of my net worth) and become a 2nd tier lender (behind the seller financing from the bank which owns it currently). I'm flying out to inspect the vessel in a few weeks. Subject to the boat being what I expect it to be I have a couple of questions that I'm hoping for some suggestions for.
1. I can withdraw from Roth accounts to about 10% NW, which would be sufficient for this investment, but that would forgo the tax free protection.
2. I can borrow (will begin speaking to banks to find out what rates would be) up to 10%, so that if I lose it all, I can still cover the loan even if I should lose my job.
3. I can borrow a greater amount and become a larger investor (20% NW), and expose myself to the possibility that I can't both lose my job and the investment and pay off the loan quickly without paying withdrawal penalties for other retirement accounts.
4. I can go whole hog, borrow 20% NW, withdraw 10% from Roth, and become partner. The potential would exist for me to draw a salary from the new company, though less that I make as an engineer probably.
They have said that they are willing to secure the loan to them with both the new company and the old, which vastly reduces the risk of lending. My intent is to try to negotiate a fixed + % profit proportional to the investment on the loans, with the fixed greater than my borrow rate should I do that. Right now,depending on what a bank is willing to lend to me at, I'm inclined to option 2. Additional potential would be to approach friends to participate to either reduce my investment exposure to 5% NW or to increase the participation and the risk of any other investors stirring the pot (Assuming that I'd represent our investment group). I suppose that I could also approach friends for a direct loan (contracted, etc - investment loan not a "cause I'm your friend loan") at fixed rate and take the extra investment risk/return personally.
There could be a lot of moving parts and uncertainties with this, but as personal potential. If I wanted to semi-retire soon to running the new operation for a few years, this would probably be a good way to do it - higher risk, but a lot of personal control and payback for sweat invested.
Thoughts and recommendations? Cynicism welcome. I've avoided direct numbers, but if anyone knows roughly what I'm likely to obtain as a rate for $100k or less loan from a bank with high credit rating, only debt mortgage <2x salary, I'd very much like to know prior to talking to banks so that I have a reality check.
Thank you all in advance.
Seabourne