We have some investors are looking to go in this Multi-family deal with us. 20 units for 2M and each of them would put $50-100k. Has anyone used OPM for down payments (20%) before? How do you guys structure the partnership so everyone gets their fair share? Any advise would help!
Hi @Dane Turk ! I do this and I try to structure it in a way that is simple and streamlined in accomplishing the goals of my partners and that is usually accomplished by running the numbers before the purchase with excellent, setting everyone's expectations on the returns they should expect, and then having a promissory note, lien, or Joint Venture agreement in place and running full speed ahead!
There are more sophisticated ways to do it, but I focus on building a trust-based team and leveraging Steven Covey's Speed of Trust equation for all our benefits.
Good luck with the deal!
You need to speak with an attorney about this to see if you can do a true General Partnership, or if you need to syndicate. If they're passive investors, you probably need to do the typical syndication steps.
The most common structure is to use an LLC with two types of membership units. Investors buy "A" units, which hold maybe 80% of the equity, but have very limited voting rights. The General Partnership (you) owns "B" shares, which hold the remaining equity and have all the voting and decision rights.
If these are passive investors, just doing a JV agreement doesn't put you in the clear. The SEC has a lot of rules, it would behoove you to research 506(b) syndications a bit more.
@Dane Turk , please take @Taylor L. 's points to heart. With 5-10 partners you're going to have a very hard time arguing that they are all "active." If they're "passive," you're in the SEC's sandbox and you don't want to mess around. Syndications can be great, but you really need to know what you're doing, have a great securities lawyer, and be willing to jump through all the hoops.
If you could lock down 2 investors willing to put in $200-250k each, that would be easier to structure.
@Dane Turk there are a lot of people on here who use other people's money aka syndication or JV. You will have to determine if they're going to be active or passive in the deal. If they are passive you will need to do syndication to stay compliant with the securities law. If they are active then you can form a partnership (speak to an attorney, I am not one).
You can structure it a million different ways. If you aren't bringing any money to the table but sweat equity that still counts for something. Say you have 4 investors at 500k, each one gets 20% ownership and you would take the last 20% for all your sweat equity.
Thank you to everyone for your replies. We will be working to determine the best setup for our business as well as the potentially different types of additional investors we are bringing in. We are very excited to expand our rental business in this way.