Should you have a PPM on a multifamily that is less than 150k?

8 Replies

Hello BP, I have a deal for a 125k. Multifamily 5 unit building. Well kept property. Below market price. I have investors but not sure on how to structure the deal. Would like advice on how to "CYA" all that are involved with this deal. Thanks in advance.

PPMs are not limited to a minimal investment amount. 

If you raise from a "friends and family" investors and you have 20-30 of those I'd say you should probably talk to a securities lawyer for CYA.

If you only take 2-3 partners, and they don't mind being GPs then you can just form a partnership to buy the property. keep it simple.

If we form a partnership as a group of (5) GP's can I still request the acquisition fee for finding the deal. What about the asset managing fee for day to day operations? Should this be a 5 way split if the investments are equal and I have some "skin in the game". Or can I do 30/70 giving them a preferred return of 8% not having any money in the deal. Your thoughts please.

@Joseph Gozlan is correct.  You can do a PPM for any amount of money.  When structuring them, I would recommend first finding out what your potential investors are seeking in an investment.  Your product is competing in the market place against other investments.  So, if they tell you they expect a preferred returned, then determine what amount they seek.  Work the numbers backwards.  With regard to fees, if they are normal fees that you would have to pay someone to do the work, then build them into the costs.  On our self storage deals, we always begin with the premise of creating over 20% return - because over time this is the most common response we have been given.

Scott Krone, Developer
(847) 272-7775
Originally posted by @Scott Krone :

@Joseph Gozlan is correct.  You can do a PPM for any amount of money.  When structuring them, I would recommend first finding out what your potential investors are seeking in an investment.  Your product is competing in the market place against other investments.  So, if they tell you they expect a preferred returned, then determine what amount they seek.  Work the numbers backwards.  With regard to fees, if they are normal fees that you would have to pay someone to do the work, then build them into the costs.  On our self storage deals, we always begin with the premise of creating over 20% return - because over time this is the most common response we have been given.

Scott,

20% COC or IRR? Huge difference :-)

To the OP,  one other thing to consider is the costs involved with setting up the securities legal structures. Between legal fees and state fees, it can be very expensive... 

Thanks guys. you both gave me something to think about.

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