BiggerPockets

Sorry for the typo: possibility.

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I hope this doesnt start the 50% argument, but whats your definition of cash flow?

i'm wondering this too...are you guaranteeing every month that you'll pay out that amount?? or is that based on your projections, be it convervative or optimistic? if you're signing that you're paying that amount, i'd take a look...like to know what these properties are selling for and what rehab is needed

I think you're fine with the solicitation Dr. Fish...until something goes wrong!

Gotta love the securities laws!

To Bryan: yes, a partner coming in would put up most of the down payment (about 95% of it). I put up the rest and manage the properties. It's hard to give exact numbers on the gross rents because each project varies. An example of one I just put together tonight is this: 16 units @ $475 per unit = $7600 / mo gross rents. Expenses including debt service = $4400 / mo. Net = $3200. In this scenario, an incoming investor would put up $50,000. I'd put up $10,000. Each month, we'd split the $3200, which is $1600 / mo for each of us. In that scenario, which is actually a little weaker than some of the other deals,the investor's annual return is $19,200, which is 38%. The seller and I are still negotiating on a few points that might make this cash flow better. (I don't know if that fully answers your question or not.)

You've left out some key numbers, like what you're paying for this place and the terms on the loan. Is the property being used to secure the loan? Are you personally signing on the loan?

Given $19,200 in annual income and 38%, I get that the investor is putting in about $50,000. You're putting in $10,000. I get that you've managing the property and are entitled to a management fee. Seems like that should be included in the expenses and then you and the investor should split the remaining cash flow 83 (investor, $50K on the line) and 17% (you, $10K on the line). Assuming a typical 10% PM fee (high on 16 units, I think), you'd be getting $760 a month in management fees ad another $6,400 for your percentage ownership.

Now, if you're personally liable for the debt and the investor is totally off the hook, perhaps your ownership is higher than 17%. And, perhaps you're entitled to something more, since you're found and bought the deal. But 50%? When you have little at risk?

The 50% rule, which certainly applies to a 16 unit, $475 a month deal would put NOI at $3800 a month. Part of that is the PM cut. Just a wild guess, but I'm guessing the purchase price at $240K, with a 25% ($60K down payment. Perhaps only $200K, with 25% down and $10K in closing costs. $150K at 6% for 20 years is $1075 a month. That leaves $2725 a month in cash flow.

Don't know if my guesses are accurate. Be helpful to have a few more numbers. If they're in the ball park, that's a pretty interesting deal. I suspect I'm low on the price (2% rule would put price at $380K, but I'm not sure how you buy a $380K property with only $60K into it), so I'm skeptical of your cash flow projections. How about giving us the rest of the numbers?

Doc Fish,
I think here is where many of us will have a different view on your numbers posted:

16 units @ $475 per unit = $7600 / mo gross rents. Expenses including debt service = $4400 / mo. Net = $3200.

$4400 in expenses INCLUDING debt service would be only 57.9% of gross rents. Typically, and on average, units with $475 monthly rents per door in aprtment settings will have 50% just in operating/capital/vacancy expenses. Then tack on debt service.

SO your deal posted would look more like this: $7600 gross rent / $3800 expenses / $3800 cash flow BEFORE debt service. Now, plug in what the exact monthly payment for debt service is and that is what the cash flow would be. If your offer is a 50% split of cash flow, then we can now see what we would earn on an average monthly basis after you give the financing details.

Your delas look good, but until all the numbers are given, it is difficult at best for us to analize for investment.
I could be interested if the returns were good enough.

What's the deferred maintenance like and the tenant turnover???

That can kill and wipe out a ton of cash flow for years.Sometimes current owners put a lot of things off to increase cash flow while they own and then want to dump off to someone else with a bunch of problems.

So cash intake is only one component.

Tom, you and I exchanged a few emails on this topic earlier this month. Please send the specifics of each deal to me, too.

Thanks, Dave