Am looking for some input on what are good terms for a partnership.
I have a deal that I am presenting to a potential partner.
Its to purchase a commercial building and lease it out to a long-term tenant. The numbers look good. The only thing. I can not come up with the 20% downpayment for this building (priced at 359K--so downpayment is $71,800). The rest would be financed.
Based on my calculations...IRR of 48% per year; 15yr holding period.
Now since I am the source for this deal and will take all the steps from negotiating purchase price etc; bidding to lease the space, negotiate terms of the lease, oversee the tenant improvements etc.
So the main thing the partner is contributing is the capital for down payment.
Whats a reasonable partnership split for such a deal?
I think any deal that can close it for you, is a good deal. Place the tenant, then sell. Maybe season for 12 months, but that is the best way for you to make money and not need a partner on the next deal.
@Ronald the reason am seeking a partner is I do not have the down payment and tenant improvement funds.
if I had the funds, I would certainly go at it alone.
Have you discussed this deal with your banker to see if they would even finance it with it being empty?
Is the seller open to a creative purchase? You could potentially get seller financing for part of it. We bought an industrial deal that was leased a few months ago where the bank lent us 75% and the seller held a second mortgage for 25%. Even after paying for a years of insurance, phase one environmental, appraisal and so on...we ended up only having $2100 total out of pocket to close it. It was a small deal at $310k but it’s an 11.3 cap so it’s a good one.
You may be able to do a lease with option to purchase too. We’re currently in the middle of two of those and 100% of our lease payments go towards our purchase as long as we finalize the purchase.
Thank you for your input. My client will not entertain sublease...so the property would have to be in my name (or my company). As for creative financing: that is an area that am exploring and my discussions with the bank has been positive so far. Its a sizable project and would like to partner with someone who maybe more credit-worthy to the banks or has the capital to put towards the downpayment and tenant improvements.