Buying Duplexes with Private Money and Exit Strategy

[Han Oo]

Hi all, how are you all doing? I submitted the offer on one duplex but seller rejected because they are selling 3 duplexes together. They are all tenanted and one next to each other and in Class C neighborhood. Currently, I cannot get loan for all three due to debt to income ratio. So, now I am asking some of my friends to partner with me to fund the deal. Below is my thinking and structure to buy and refinance plan. CMA was about $120,000.

Purchase Price for 3 duplexes : $240,000 

Current Rent: $2,850

Rehab: No plan to rehab

Option 1:

Buying with 100% cash from my investor and refinance later to cash out later to pay back to my investors. 

Equity and cash flow split: 40% to 50% split 

Entity: LLC ( Already found the lender who can do cash out refinance under LLC for 1 to 4 properties).

This is only if the appraisal comes back with at least $300,000 then we can do 75% to 80% LTV cash out.

Option 2: If the appraisal comes back short, then I wan to like this as my exit strategy. 

I would like my investor to act like my bank and I will do 30 year amortization with agreeable interest rate with the option to refinance in 3 year to 5 years. 

They will still get the equity and cash flow split according to the operating agreement. So, my investor will be getting the loan cash flow, 50% of rent cash flow and 50% equity split. 

So, what do you think about my plan? So, I am also thinking of getting appraisal first since I am not rehabbing or doing anything after I got under contract to make sure that I can do refinance. Of course, I will have to spend on appraisal first. Thank you all in advance. 

Very Respectfully,

Han