JV Structure - Preferred Return and Promoted Interest

2 Replies

Hello everyone

My business partner (a friend from school) have identified a deal that we are interested in purchasing. We have identified an LP investor through friends and family and are trying to identify what would be an attractive structure to pitch for our first deal. After having listened to several BiggerPockets podcasts we will attempt to keep it as simple as possible. This means that we are not interested in charging management, acquisition, or any other fees but hope to incentivize our GP position with an attractive structure. Here is what we are assuming:

90 % LP / 10% GP capital infusion

Pari-Passu to an 8% preferred return

10% promoted interest to the GP over the 8% return, making it 80% LP / 20% GP

Any other recommendations on how to go about it? We are looking to purchase two rental properties near a college campus with no value add component planned for the near term. Do typical JV structures of this type (buying stabilized or new/turnkey property) fit this model listed above? Or should we adjust the preferred return? If we aren't taking fees should we go for a higher promote to the GP? Any help would be greatly appreciated, thank you.

Originally posted by @Mark Butler :

Hello everyone

My business partner (a friend from school) have identified a deal that we are interested in purchasing. We have identified an LP investor through friends and family and are trying to identify what would be an attractive structure to pitch for our first deal. After having listened to several BiggerPockets podcasts we will attempt to keep it as simple as possible. This means that we are not interested in charging management, acquisition, or any other fees but hope to incentivize our GP position with an attractive structure. Here is what we are assuming:

90 % LP / 10% GP capital infusion

Pari-Passu to an 8% preferred return

10% promoted interest to the GP over the 8% return, making it 80% LP / 20% GP

Any other recommendations on how to go about it? We are looking to purchase two rental properties near a college campus with no value add component planned for the near term. Do typical JV structures of this type (buying stabilized or new/turnkey property) fit this model listed above? Or should we adjust the preferred return? If we aren't taking fees should we go for a higher promote to the GP? Any help would be greatly appreciated, thank you.

your planning to scale this right ???  doing these kind of partnership for a couple rentals seems like a lot of work with very little reward regardless of how you set it up.

@Jay Hinrichs absolutely. This is our first deal of hopefully many. We want to utilize the power of OPM as we grow our capital base so that we will have more to invest in larger portions in the future. This deal, as is often described by many, is more about learning and experience. We are hyper focused on providing our LP a solid passive return while we learn the ropes and hope to repeat/increase volume as we gain traction.