How would you structure this deal?

Question

Hello BP community. I need a little help structuring a deal with an investor. I found a deal. It's a multifamily property that has potential to increase rent of $150/unit with minimal improvement. 13 Units. I am buying it for $760k, owner financing. Seller wants $250k as a down payment. $510k financed over 20 years at 5% interest rate. The property in 2-3 years should be stabilized and the property should be worth around $980k with 14.5% COC ROR. So, I will increase the value of the property by $220k. Since the down payment is $250k, would it be reasonable to both of us go 50/50 on this deal since my partner who will put the 100% of the down payment will be basically a passive investor. I am going to be overseeing the property. I am hiring a property manager but still I am the one who will be in charge of the project. What are your thoughts on this deal? Would you structure it differently? Thank you!!!

Eric James · Answer

This isn't a serious thread.

Eric James · Answer

Your partner should go to a bank and get a loan for only 25% down. Buy the property solo and pay you to be the PM.

Maksu Ize · Answer

@Eric James

Thanks to useless comments like yours

Jonathan R McLaughlin · Answer

@Abad Marroquin wait, you are going to hire a pm? And you want 50% because of this hoped for increase in value? Wow. Let's just say this wouldn't be a particularly attractive proposal to me as an investor. You want me to credit you with 100% of the upside I'm risking 250K outright. This looks more like a finders fee situation to me. You can find standard loans in the low 4s with 20 or 25% down and 25 year amortizations.

I've bought and sold similarly priced properties. This additional 220K you speak of,  is due to the PMs efforts of placing the tenants and whatever savings you have from expenses/renewable capex. Not seeing the value you are adding?

Jonathan R McLaughlin · Answer

echoing at @Eric James here, but why would you do this owner financing deal with that large a downpayment, partner or no? For that matter, why would the investor want to put in so much to give you 50% equity when you are doing just what a property manager would do for 10% and change.

The terms of the loan aren't awful--not sure if there is a balloon--but unless your credit (or investors credit) is in the toilet you can do better on a simple commercial loan, and you are almost certain to have a lesser down payment.

Abad Marroquin · Answer

That’s probably the best you can do, but I know I can do better than that because I have done it already.

Abad Marroquin · Answer

A master lease would definitely be a good option, although the seller would like to go ahead and sell it through owner financing and take advantage of the lower tax rate. Thank you for your input.

Conn G. · Answer

Sounds like a good deal. The most important thing to consider is what are your exit-strategies? 2-3 years from now, who  will fund this deal? Will the economy be strong enough for banks to lend out their money?

Another option is doing master lease options for that 2-3 year span. This allows you to take over the property & it's cash flow while have an option to back out if financing is not available after that 2-3 yr span.

How would you structure this deal?

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