Multi-Family funding & partnership

[Ben Watkins]

Hey everyone! Got a quick question on best practices for a deal I’m working on...

My business partner and I are listing our first SFH flip next week, just closed on a quadplex, and have another 6 units under contract to close next month. We're trying to scale quickly but are now exploring options for cash investors as much of our cash is tied up in our first few deals. I have an investor who has cash and is interested in long-term rentals but does not have the time to find, negotiate, close, and manage deals. So they want to provide the cash for the down-payments on our deals.

My question is on the equity split. I proposed to them that we (my partner and I) provide the deal, secure bank financing for 75-80%, manage any rehab work, close the deal, and setup/manage the PM going forward. Then they provide the DP but not in the form of a loan. I proposed a 50/50 split of cash-flow and equity. 

So...

1. Is this a fair and common split? The property is an $80k duplex. 

2. When we sell the property do we pay them back their initial cash investment before splitting any additional equity gained or do we split the equity at that time 50/50?

For example...the property is $80k and they put in $20k cash. We split the $250/month cash flow 50/50 for the next 3 years. In 3 years we sell the property for $100k and have not invested any further cash into the property during the 3 years. At that time do we pay them back their initial $20k and then split the additional difference between sale price and bank payoff? Or do we split the difference between sale price and bank payoff 50/50?

Any guidance would be greatly appreciated! This relationship could be very lucrative for all parties involved for the foreseeable future so I want to be sure we’re laying a solid foundation to start. 

Thanks in advance for any input!

Ben