NW Triplex Deal Structure and Entity question...
Hi BP!
I just found a cash-flowing Triplex in my area but I don't want to finance the entire deal myself. So, following Brandon's lead, I am looking around my network for partners to lend me their lend-ability, ie, I need their ability to qualify for financing. I know several of you wise investors will caution me to not get into an investment if I have bad credit. To focus this discussion, let me say that my credit is fine, I have the capital to put down 25% or more by myself, and would qualify for the loan to do this deal. However, I don't want to tie up that much capital in this one deal, and I have another project that I am saving my personal debt-to-income for.
The deal:
Listed for $280,000. Would need about $80k invested, assuming 25% down, closing costs, and some initial rehab. It would cashflow $730 a month after I allowed for 5% vacancy, 5% repairs, 5% capex, 10% management, insurance and taxes (Thanks BP Calculators!)
I put in $40k, set up deal, set up entity, and manage.
Other investor puts up $40k and has the note in their name.
To stabilize, I put in an additional $15-20K in a reserve account at 5% interest (I sort of loan it to the deal) and all cashflow, maintanence, and capex (about $1200 each month) go into this account until it reaches $20k (about 1.5 -2 years). I then recoup my $20k with 5% interest that I had loaned to jump-start the reserve account.
I receive the 10% management fees AFTER stabilized and we split cashflow and any sale proceeds 50/50.
1. Does this arrangement sound reasonable?
2. What entity sounds best suited here? LLC, GP, etc? I know this is an attorney question, but I would like to have a vague sense of what I am doing before I call them up.
Thank you BP!