Deal/Investor Criteria for Apartment Investing.
I would love some feedback from any of you regarding my set up for investor returns and should I add anything more , I was thinking of including a guaranteed equity multiple as well but just forgot to add will do if that metric is important to investors in todays market.
If you're starting out 30% is a very high split. Newcomers usually do less than 20% and get to 20% once you got a couple of deals under your belt.
@Account Closed the split that you get also depends on whether or not you're working with a qualified sponsor and how good the individual deal is. If you're working with a qualified sponsor, you can definitely get 30% of the ownership for the GP.
Never guarantee anything, unless somebody is willing to pay it out of pocket in a worst case scenario. Equity multiple does seem to be important to many LP's, but you'll be much better off using the term "projected equity multiple" instead of "guaranteed equity multiple."
Is PRR preferred rate of return? If so, I'd recommend offering one regardless of how much equity you're giving them. Preferred returns are very common within the industry and every group that I know personally offers them. You'll likely be at a big disadvantage if most other groups are offering them and you're not.
@Charles Seaman Yes PRR is preferred rate of return. Thank you for the feedback , I will def reconsider offering PRR up front.
@Account Closed you're welcome. That will help you a lot because it will be tough to attract investors without offering a preferred return.
How do you expect to use the information you asked us to review? It will not be legal to just send it out or to use it to attract investors who you do not already have a relationship with.
In addition, you are likely pooling funds. Before you can speak about an opportunity you will need to register the offering. Have you factored that into your process?
@John Corey the criteria at the bottom is what I plan on asking brokers to be on the look out for , I am a licensed realtor in Houston so that shouldn't be too hard. When I find a deal then I would be trying to aim toward the goals listed above as far as returns for investors. To answer your question I have yet to factor that in , I have started talking to some sec attorneys via phone about the subject. Do you have any advice on how to properly set up?
@Account Closed the most important metrics to investors are usually the CoC return and the IRR. Focus more on these metrics when you're leveraging the equity with debt