I found the deal, presented it to a partner...now what?

31 Replies

I am new to multi family but not real estate.

I know a person that wants to sell their 10 unit apartment building. Great location, great price, good condition. Anyways, I do not have enough money for a 20% downpayment so I presented it to another investor I know. 

They really like the property and want to buy it, however, I think they want more of a 50/50 partner as far as putting the money down to buy the property. I could put maybe 10% of the required amount down to help. They are offering a finders fee but I would really like to own a piece of the equity, EVEN IF it is just a very small percentage. I dont really want a fee. I want to build my portfolio. Is this possible? What should I do?

Thanks!!

@John James yes it’s possible, but look at the from the other investors perspective. They’d have to deal with a minority partner and that can complicate things a lot both tax wise, and with decision making.

Let’s say you own 10 percent of the equity. Are you going to have any operational decision authority? If you don’t, then how would that work? Are you going to contribute 10 percent of the on-going costs? Property doesn’t always cash flow. Personally I would take the fee and move on

@Caleb Heimsoth I agree, although it may not seem like the ideal thing to do. Don’t get emotionally attached to the deal just because it may be a good one. More good deals will come in the future. Best to accept the fee and learn from the process as well as add to your reserves for future investments you may be able to do without a partner. Just my opinion.

@Caleb Heimsoth Not sure what you mean by if I own 10% of the equity, am I going to contribute 10% of the costs? I would be expecting the monthly cash flow to be spit up, which expenses are already deducted by the time you receive cash flow. 

You here all this stuff about buying real estate with no money down or if you dont have money then partner with somebody...well that's what I am trying to do. 

Originally posted by @John James :

@Caleb Heimsoth Not sure what you mean by if I own 10% of the equity, am I going to contribute 10% of the costs? I would be expecting the monthly cash flow to be spit up, which expenses are already deducted by the time you receive cash flow. 

You here all this stuff about buying real estate with no money down or if you dont have money then partner with somebody...well that's what I am trying to do. 

Basically I’m saying if it doesn’t cash flow one month are you going to contribute to the costs of carrying the property? 

Property doesn’t always cash flow. I think you have a lot more learning to do before you become a minority owner on a property like this 

 Would the owner finance with your 10% down? Also what is your partner doing? You found the deal. What would the investor bring to the deal, cash and? Who is finding the finances? Who will be managing the property?

Next time line up financial backers that are willing to let you keep a piece fr the sweat equity.

Perhaps find another investor and present it to him as a "syndication" type. Offer them a pref rate of X and then split the balance XX/XX.

I recommend you read the book The Best Ever Apartment Syndication Book. Even if you aren't looking to go full blown syndicate this will help you structure your partnerships.

Owning means you own the debt and a huge expense bill that month too! Be careful what you wish for you may just get it . If you don’t have the down money how the heck will you make it when you need a 30k roof that needs replaced immediately or furnaces go out all of a sudden ?

Could you restructure the deal such that you could borrow the money from someone and pay them a return, or approach another investor who wants a less active role? It sounds like you and this person you approached might have a hard time getting on the same page.

@John James good job on finding a solid deal. I think what @Caleb Heimsoth is saying though is that there will be times when the property might be cash flow negative (ie high than expected vacancy, big CapEx piece, misc expenses etc). Are you prepared to contribute/raise capital to offset these expenses? If not, maybe just take a fee on this one and use that money to do your own deal on the next one.

Originally posted by @John James :

@Caleb Heimsoth not sure why it wouldnt cash flow one month lol but uh thanks for the info 

 No John - not lol.  They are telling you the reasons why it might not cash flow, you are just not listening.  If you have to make a major repair like broken pipes or a roof, you and your potential partner will spend more than you make that month.  If several tenants do not renew their leases and move out, you and your potential partner would spend more than you make until those units are filled.  There are dozens more scenarios where this could happen.  It is possible to make more than  you spend, but it is not guaranteed to happen.  

@John James Sure but usually when people partner they bring opposite skill sets to the table. You just know of a deal, you don't really have anything else to contribute to an experienced investor that has the money to bring this deal down. A finder's fee definitely seems like its more appropriate than partnering up unless you have known this person a long time and they just want to help you out for some reason.

Put a promote structure in place, specially for this one off deal. That way you GP, get a management fee, and most of the profits if you think the property is going to do that well.

Originally posted by @Cory Norris :

Put a promote structure in place, specially for this one off deal. That way you GP, get a management fee, and most of the profits if you think the property is going to do that well.

I don't know many (if any) investors who will fund an entire deal and then give up "most of the profits" to the person who brought it to them.

@John James I don't but I just figured, in the interest of getting the best advice possible, you'd mention it if you did. If this person is an experienced investor with management systems in place to handle this property what can you offer? I'd probably try to use my existing management skills, rehab knowledge and skills and my connections with contractors and banks to leverage myself into the deal as the partner that manages the property. But honestly if he has systems in place it's going to be a tough sell. Good luck.

@John James Hey John, not sure if anyone else mentioned this. 

What you could have done is structured a really beneficial Seller Financing deal and use your 10% downpayment in exchange for a higher interest rate with a, say, 5-Year balloon

The Seller may have been opened to that option, as it would have been beneficial to the Seller, especially from a tax perspective. 

@John James simply approach the investor and let them know what you're looking to achieve. In most cases you should be able to carve out a piece of equity on the GP side for finding the deal. It could be 5-10%. This is a smart move to make. 

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here