Investor Feedback Needed – Would You Like This Structure?

Question

I’m testing an investment model for a value-add multifamily project and want to know if this would appeal to you.

Structure:

• 6.5% preferred return, paid monthly (accrues if unpaid)
• 50% bonus cash flow split above a set tier until refinance
• No bank debt – 100% equity-funded for lower leverage risk
• Capital returned + 10% bonus at refinance  ( 3-7years hold)
• Optional equity buy-in at refinance – Up to 20% equity available to purchase at the original valuation, even if the property value is higher by then
• No GP fees – The GP is only paid from cash flow created after the preferred return and expenses are paid monthly
• No initial equity – you’re in a lender-style position with first money out protection until refinance

Poll:
Would you be interested in this type of structure?

• ✅ Yes – sounds like a great balance of security and upside
• 🤔 Maybe – would need more details
• ❌ No – not the type of structure I prefer

Comment below with why you chose your answer — feedback helps me refine the model.

Chris Howell · Answer

@Evan PolaskiThanks for commenting

I’m not looking for investors in small deals like single-family properties, and I’m not looking for partners through forums like this. The recent single-family purchase I mentioned was only an example, since I know the actual numbers and could easily show how my structure works on a real property.

My real focus is on acquiring $2M–$5M multifamily properties that are bleeding money through excessive contractor costs, overpriced materials, and poor operating margins. These are the properties where operational efficiency and cost control can quickly turn performance around which are my strengths as an investor.

I don’t have a fund and have never taken outside capital before — I’ve been investing solo for 20+ years using traditional financing. I’m now building a structure that’s different from a typical syndication. I don’t like heavy debt or fee-heavy deals where someone gets paid before the property performs. My goal is a “win–win” setup that delivers stability, steady returns, and long-term growth for both sides.

This structure won’t appeal to investors chasing the highest possible IRR, but it’s designed for those who value a reliable monthly return, an additional bonus, and appreciation.

thanks

Evan Polaski · Answer

@Chris Howell, so it sounds like you were not wanting feedback, but rather advertising under the guise of feedback for something you already have in the works.

Adding color to the deal, in my eyes, doesn't help the case.  The numbers you provided don't take into account any "fund level" costs, i.e. accounting fees and K-1 prep, systems like an investor portal to easily process distributions and allow investors clarity on project position, and most importantly the $10k in attorney's fees to setup and syndication with the legal docs and SEC filings.

But beyond that, your numbers do not create a strong enough return to overcome the risks.  @Chris Seveney, is your fund paying 12%/yr, current?

And finally, my biggest concern: in the world of real estate, $60k is not a lot of money.  Which creates two red flags: first the deal itself.  A $35k house in today's market screams war zone area, super rural with limited demand, or almost falling over (necessitating far more than $20k of renovation).  Second red flag is why you even need the money.  You note having successfully done this for 20+ yrs.  I get everyone's definition of success is different, but in the world of real estate, I cannot understand why you would even need $60k to begin with.

Again, I am not your target investor, I get it.  But you asked for feedback, so this is my feedback as someone who has done BRRRRs and flips for the last 15 yrs, worked in the syndication space for 18 yrs with $25k investors up to $100mm institutional investors, and studied real estate in college prior to that.  I am an LP in syndication deals.

If you want someone to consider this type of investment, I would reach out to your friends and family.  They are more apt to trust you, foremost, and likely aren't looking at a lot of other types of deals, both actively and passively, to compare your deal to, therefore making them hear "12% backed by real estate, with someone I know.  That sure beats my 8% index fund.  I am in"

Chris Howell · Answer

@Evan Polaski

My structure wasn't meant to be complicated below is the deal based off a property I purchased 8 months ago and if I used gp lp structure instead of a bank.

Example: How the LP-Friendly Structure Works

(Based on a single-family rental I completed 8 months ago — not hypothetical)

Purchase & Rehab

Purchase Price: $34,000

Rehab Cost: $20,000 (self-performed at 40–60% below market)

Total Capital Required: $60,000 (from LP)

Operations

Rent: $1,000/month

NOI Margin: 60% with 91% occupancy

Net Income Before Pref: ~$546/month

LP Returns (Years 1–3)

Preferred Return: $325/month

50% Cash Flow Split Above Pref: $110/month

Total Monthly to LP: $435 ($5,220/year)

Total 3-Year Pref + Cash Flow: $15,660

Refinance at Year 3

Property appraised for $105,000 only 3 months after rehab

LP Gets Back: $60,000 original investment + $6,000 bonus

Total LP Profit in 3 Years: $21,660 → ~12% annualized ROI

LP’s Choice at Refinance

Option 1: Take all capital + bonus + pref payments and exit deal

Option 2: Roll $12,000 into the deal for 20% equity in a property worth $105K — essentially buying in at the original valuation with no new money out-of-pocket

Why This Works for LPs

First in line for payments — no bank debt and no GP fees ahead of you

Proven model — I’ve done this for 20+ years, consistently hitting 60%+ margins on my SFR

No speculation — this example is from an actual deal I executed recently.

Straightforward terms — secure cash flow + clear exit + optional upside

hope this helps understand my structure a little better now I am just looking to do multifamily deals where I can scale faster than SFR.

Chris Howell · Answer

@Brian Burke

Thanks for your response.  I am in the middle of remodeling a property so I am just now able to get back to your questions.  I hope to answer questions about my structure to clear it up a little.  I am sure there will still be differences in philosophy and what what we each value.  I like the pushback it helps me to become better.

1.  
You’re right that our 6.5% preferred return is lower than some market offerings. However, when you factor in the 10% bonus on original capital at year 3, the effective annualized return is roughly 10.5% before even considering ongoing cash flow and equity participation.

Most traditional syndicated deals don’t offer this type of bonus at all, and they typically rely on higher preferred returns that put more strain on cash flow in the early years—especially during renovations or repositioning. By keeping the pref at 6.5%, we reduce operational pressure, improve deal stability, and protect the property’s ability to generate consistent returns for the long term.

This structure is designed to be both investor-friendly and operationally sound, balancing attractive returns with a stronger safety margin.

2. On paper, a 50/50 split on top of the preferred return may seem less generous than a 70/30 split. But in reality, our structure often results in more total dollars to the LPs because:

1. No Debt = More Distributable NOI

In most 70/30 structures, there’s significant bank debt. After debt service, the distributable cash is smaller, so even a higher LP share (70%) is a higher percentage of a smaller pie.

In our structure, there is no bank debt eating away at NOI, so the post-pref cash flow being split is much larger from day one

2. No GP Fees = No Capital Drain

Many standard syndications charge acquisition fees, asset management fees, refinance fees, and even disposition fees. These come right off the top before LPs see a dime.

We charge zero GP fees, meaning all available cash flow above the pref goes directly into the profit split. That’s effectively like raising the LP’s true economic share without changing the split percentage on paper3. Lower Preferred Return = Stronger Deal Health

A 6.5% pref (plus our  10% capital bonus) is easier for the property to hit consistently, which avoids accrual buildup and cash strain. In a leveraged 70/30 deal, missing a higher pref can delay or shrink upside payouts4. Bigger Pie, Smaller Slice Still Wins

If the property’s NOI is 30–50% higher because we don’t have debt service or GP fees, the LP’s 50% share of the “bigger pie” can exceed what they’d get as a 70% share of a smaller, debt-burdened pie.

3. It’s true that most sponsors use debt to amplify returns, but that leverage also amplifies risk. My model is designed to deliver secure, predictable cash flow first — with upside coming from operational efficiency rather than financial engineering.

Secured 6.5% Preferred + 10% Capital Bonus

LP payments are backed by the property’s income, not subject to being crowded out by bank debt service or GP fees. The 6.5% preferred is a floor, not a projection — and when you include the 10% bonus on original capital at capital events, the effective annualized yield moves into the 10%+ range before counting equity upside and casflow bonus splits Leverage Comes from Execution, Not Banks

My competitive advantage is the ability to self-perform rehab and management with inhouse team 40–60% below market rates. Over the past 20+ years, I’ve consistently taken properties running 0–20% margins and turned them into 50%+ NOI margins. That operational lift is my leverage — and it compounds year after year without bank risk   Alignment of Interests

Without bank covenants, GP fees, or preferred GP distributions, every dollar of NOI is split between GP and LPs after the pref. We’re both incentivized to maximize sustainable cash flow. In a leveraged deal, GP and LP interests can diverge when bank obligations force short-term decisions.  Risk vs. Return Reality Check

Yes, debt can produce higher pro-forma IRRs — but if the sponsor defaults, LPs can lose two years of payments, legal costs, and end up with a distressed asset worth less than the capital invested. My structure eliminates that catastrophic downside scenario.

4.  At refinance —  year 3 to 5 — LPs receive 100% of their original capital back plus a 10% cash bonus. At that point, you are completely cashed out of the deal if you choose to be.However, if we’ve executed correctly, the property’s NOI will have increased significantly, which directly boosts valuation. We only target properties where forced appreciation is highly achievable through upgrades, margin improvements, and operational efficiencies my team has proven over 20+ years.

For example:

Buy for $300K, force value to $520K in 3 years.

At refinance, you have the option to roll part of your returned capital back in (say $60K) to retain 20% equity in a property now worth $520K — essentially buying equity at the original valuation with no new money out-of-pocket

This creates two competitive advantages for the LP: Zero Capital at Risk Going Forward – You can stay in the deal owning equity with litte to none of your own cash in playLeverage Without Bank Risk – You’re participating in the upside of a much higher-value property, but without taking on lender repayment risk or GP fee erosion

5. In any standard syndication, no LP owns 100% of the deal — ownership is split between the LP group and the GP from day one, typically 70/30 or sometimes 50/50, depending on the structure. The GP always retains a share because they’re sourcing the deal, managing operations, and driving performance.

So even if you were the only LP in the deal, you wouldn’t own 100% — you’d own the LP portion (e.g., 70% or 50%) and the GP would still hold their agreed share.

At refinance in year 3–5, you’d receive:

100% of your original invested capital back

10% cash bonus on that capital

All preferred return payments earned to that pointOnce that happens, your capital is out and your LP ownership ends unless you elect to roll some of your returned capital into a new equity position in the now more valuable property. But as a bonus you are buying equity at original valuation so you instantly have equity. That optional roll is a way to keep earning from a de-risked, higher-value asset — but it’s not required

6  I understand why many sponsors take GP fees — it’s often the only way they get paid early in a deal. But my model is different by design.

I’m Already Fully Bought In – I’m the GP, and I’m entirely comfortable with a no-fee structure because this is a 5–10 year play for me to triple or quadruple my revenue. My incentive is tied directly to property performance, which keeps me aligned with the LPs every step of the way. I already have income from my SFR that pay my salary these new properties are just increasing my monthly cashflow.  Cash Flow From Day One – I will only acquire properties that cash flow after paying the 6.5% LP preferred and all operating expenses from day one. I’m not buying low-yield 5-cap deals where the GP’s only hope is long-term appreciation and rent increases and low intrest rates. Proven Margin Expansion – Over the past 20 years, I’ve consistently taken underperforming properties with 0–20% NOI margins and turned them into 50%+ margins by increasing rents through unit upgrades and slashing operating costs via self-performing management and rehab at 40–60% below market rates. This execution is my “leverage,” not risky bank debt. Why 5-Caps Don’t Work Here – A 5-cap property offers little to no room for NOI growth without speculative rent hikes. I target assets with clear operational inefficiencies where I can force appreciation quickly and sustainably.In short, I’m not depending on fees to survive — I’m depending on my own operational track record to produce strong cash flow that benefits both LPs and me, starting immediately.

7.
In my model, the LP isn’t a “100% LTV lender” in the way a bank was during the subprime era. You’re not making a loan against a property someone else overpaid for — you’re an equity partner in a property purchased all cash at a discounted price with  day-one cash flow.

What “First Money Out” Means Here:
In a traditional syndication, the LP sits behind debt service and GP fees in the payout order. In my structure, there’s no lender ahead of you and no GP fees siphoning off cash flow. That means every month, you’re first in line to be paid your preferred return — before I take anything.

Why This Lowers Risk:

• We buy properties well below market value from distressed or mismanaged situations, not fully priced 5-cap trophy assets.
• All-cash purchases let us move quickly, negotiate steep discounts, and avoid interest rate exposure.
• Properties are acquired already covering the preferred return from day one, with upside coming from my proven track record of increasing NOI margins 40–60% through hands-on rehab and management.

The Problem With Most Current Syndications:
Many sponsors in the last few years bought 5-cap rate deals on speculation — betting on rent growth and interest rate drops. They took their GP fees each month while LPs waited for returns that never came. When rates stayed high, those deals stalled or failed.

My Approach:
This is designed to be a win–win:

• Stable income for LPs
• Significant appreciation potential from operational improvements
• Downside risk reduced by buying right, avoiding debt, and aligning GP and LP interests

We’re not chasing speculative IRRs — we’re building durable, long-term wealth with a small group of LPs who value security, upside, and transparency.

McFarlen Jean-Pierre · Answer

@Brian Burke I agree. Beautifully explained.

Brian Burke · Answer

I agree with @Evan Polaski, I'm not a fan.  Here's why:

1. 6.5% pref is below market.  There are better alternatives available.

2. 50/50 split over the pref for a buy/hold income property is below market.

3. No bank debt = no leverage at all, which is problematic in multiple ways, one is that returns will suffer, likely falling in the 5-8% range and I can get that from good dividend stocks with full liquidity or from a debt fund with first-lien rights and the ability to foreclose or redeem depending on the structure.  And second, it will require you to raise a mountain of capital for one deal, which means a few things: First is you might not be able to execute, leaving the deal stuck and unable to close, resulting in a loss of costs to that point, second that it will be difficult for you to scale, and without scale you won't earn enough to live off of and would either be a weekend-warrior investment sponsor, or an absent sponsor, neither of which are beneficial to an LP.

4. Capital returned + 10% bonus at refinance, I don't understand what you're saying here. Does this mean that your promote drops from 50% to 40% if some of my capital is returned?  Or all of it?  Not that it really matters because 50% was too rich for this type of plan to begin with.

5. Optional equity buy-in at refinance:  I don't understand this either, because if I'm the sole investor, don't I own 100% of the equity interests already?  Or are you saying that your promote can be further reduced by 20%, but I have to "buy in" to get it?  No thanks.

6.  No GP Fees:  I don't like this idea because a GP that isn't making any money is going to get a job and leave this investment in the dust.  Fees are there for a reason--to keep you working.  In this case, there's no debt, meaning the investment has to throw off more than a 6.5% return for you to make a dime, and a multifamily deal trading at today's prevailing cap rate of 5% or so isn't likely to exceed the pref for quite some time, and with accrued pref stacking up you might not make a dollar for 3-5 years.  I'd be concerned that a sponsor who isn't making any money because of no fees and can't scale because of the mountain of capital needed to buy assets all cash wouldn't last long and I'd be stuck dealing with the aftermath myself, which isn't why I invest passively.

7.  No initial equity, lender-style, with first money out:  Huh?  If the property is unlevered and I'm the only investor, who else could be in front of me?  I'm first money out regardless.  And to invest 100% cash for a full-stack deal and take a lender position?  You're asking me to be a 100% LTV lender--that didn't work out so well for Countrywide and a slew of other subprime lenders back in 2005-2008 so maybe someone who hasn't lived through that wouldn't know the risk they are taking in exchange for such low reward here.

I guess aside from all that, it sounds OK.

Evan Polaski · Answer

@Chris Howell, so is this a recorded lien position, with foreclosure rights?

This is not really a structure that speaks to me for a few reasons:1. If I am a lender, I want a higher interest rate.  I can go to Chris Seveney and get 10-12% in a true lien position.  And I want recorded lien protections.2. If I am equity, I don't want to cap my upside like this. 3. It is overly complicated.  Ultimately, this sounds like a pref equity structure, but with far more variables.  Most pref equity is fairly straight forward: 7% paid current brought to 13% IRR on exit.  There are often key decision rights, too, i.e. can force a sale, personal guarantees from sponsor, etc.