Professional · Houston, TX · Member since 2014 · 11 posts · 0 votes
I'm looking to invest in a MF property in Richmond, VA and have 2 other JV investors I'm working with. For simplicity, we have $30,000 down and will buy a $100,000 property. Property is a Class B property and the goal is to do minor rehab work. I have a few friends that also may be interested in the deal, but only want to put in $1000 or $5000 (the "Extra Cash").
Question: Should I take the Extra Cash?
Pros: - I use the Extra Cash to reduce my downpayment or use it for rehab work. I get more investors and knowledge in the deal.
Con: - I have less leverage now, and have less of a return.
- The return for the larger investors goes down because their piece of the pie is smaller
- It creates more paperwork, more accounting, and too many cooks in the kitchen. To be fair, the smaller investors will have no management power other than voting on "Major Decisions" like selling the property or approving a budget, but that could be hassle.
Investor · Atlanta, GA · Member since 2012 · 408 posts · 37 votes
11y
The only reason I would take the extra equity is if you do not have enough for either this deal or another deal.
If you feel like their knowledge is worthwhile, and only achievable with their equity, then it may be worth it. But, you might be able to leverage their knowledge and equity in another deal that you don't have the funds for now.
Property Manager · Minneapolis, MN · Member since 2014 · 380 posts · 167 votes
11y
I wouldn't for a 100k deal. We syndicate our larger apartment acquisitions with 50k or more per accredited investor. Usaully raise 400K to 1 million plus for down payment and renovation expenses.
It is expensive and a lot of work to put legal approved docs together and provide monthly reporting and checks per investor. I personally send out around 80 or more myself and as much as I appreciate our investors, it is a lot of work and responsibility.
I wouldn't for a 100k deal. We syndicate our larger apartment acquisitions with 50k or more per accredited investor. Usaully raise 400K to 1 million plus for down payment and renovation expenses.
It is expensive and a lot of work to put legal approved docs together and provide monthly reporting and checks per investor. I personally send out around 80 or more myself and as much as I appreciate our investors, it is a lot of work and responsibility.
Good info but if you reread post the numbers he was referring to were just for example purposes, not actual amounts.
Property Manager · Minneapolis, MN · Member since 2014 · 380 posts · 167 votes
11y
gotcha, same info applies. If you can easily do the deal yourself it makes sense to do so. Part of many companies strategy is raising capital and recycling funds into more and more deals, so raising money is probably the best major wealth building vehicle in RE.
It isn't easy (at least not in my expeirence), but has been a part of every major property we own. Relationships and trust take time to build, so if continuos growth and larger deals are the goal investors are the best way to achieve this.
Just do your homework, hire an attorney to draft paperwork and perform as expected. It is a lot of work in the beginning, but gets easier with each deal as relationships and case studies are formed.
Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
11y
Structure the deal as follows so its a win-win situation:
Scenario 1: Keep the JV equity where it is so the return is the same for all parties. Take the extra cash for rehab and offer a set return (% or amount) to that investor but make sure all JV parties agree and have knowledge of the funds.
This will allow you to build report with the $5K investor for future deals and its less out of your pocket. You can always set this up on terms that benefit everyone such as distributing the initial returns for "X" # of months back to the $5K rehab funding investor. Once those funds are paid back all the initial JV partners will see bigger returns for the remainder of the investment.
Scenario 2: Take the funds and apply as a down payment for the next deal. Tell them the $ will e in an account until the next deal arises and once applied they will be notified and the repayment profits will start.
My thoughts are take it while you can get it and find a way to make it work so you can build a long term relationship with them and do bigger deals later because you never know when you might need that $ and if they dont invest it with you now it may disappear or be invested elsewhere drying up your source.
Investor · Cincinnati, OH · Member since 2013 · 2k+ posts · 1k+ votes
11y
@om
@Account Closed it depends on your goals but I personally would involve more investors so that you can create a track record with more people and help scale the business on future deals.