How would I structure apartment building purchase with investors?

Question

By the end of this year, my goal is to purchase a million dollar apartment building. I'll omit units and location for this question. I know I'd have to put down at least 25% which will be $250k. I'm putting up $150k and will have two investors coming in at 50k each. Besides the LP structure, how would you structure the payout every month after all bills and debt services are paid? Would it be a percentage of the profits every month or would it be a percentage of what they put into the deal.

Shawn Ward · Answer

@Menalik Archer good question. Their cash contributions equate to about 20% equity each, but because you are putting in money AND all of the work, you have to get a premium on your equity. I'd say they each should be at 10% partners each. Max.

Onwards!

sjw

Onwards!

sjw

David Thompson · Answer

Menalik,

I think % of equity into the deal as a starting point then bake in an acquisition / asset mgt fees as ideas for your time finding the property, developing a business plan and executing the business plan if the others are passive.

Menalik Archer · Answer

Thanks for all the suggestions! They will not really be active partners. I'll be the one doing all the heavy lifting: finding the property, guaranteeing the loan, sourcing property management. They will just collect a check because they have money in the deal.

Michael Le · Answer

Will they truly be partners? Will they participate in the decision making? If not then this will be considered a security and you'll need to treat it as such.

If it is truly a partnership then, as Everett mentioned, it can be structured however you like. Even though you bring 3/5 of the money, if you also found the deal and are putting it all together then you should be getting paid for that too. But whatever you decide, make sure it is agreed between all parties clearly and mostly importantly in writing.

Everett Fujii · Answer

Short answer is you can structure it anyway you want in terms of payout, provided everything is agreed upon and signed.

The long answer is there needs to be more information before really suggesting a good solution.

Who is doing the work on the deal?  Who's going to deal with property management?  Who's taking on the loan guarantees?

There's a ton more issues that aren't associated with the payouts to address (no clue if you are aware of the potential issues that need to be figured out or not).

How would I structure apartment building purchase with investors?

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