Given my track record with student rentals I have recently been approached by an investor with lots of cash to do a JV in this niche. He would provide the cash for a down payment on a mortgage, cash for closing and any rehab that is required on property I find with a great ROI. I would have no cash in the deal. My value add is that I know the market insanely well, find the deals, manage the rehab, manage the property, increase the rents and force the appreciation. The hook: I would be signing the loan though, not the investor (we would LLC) which I don't have an issue with.
What do some of you think is a fair equity split and a fair split of the profits in a scenario like this? I have some numbers in mind but curious what other savy investors think.
Updated over 1 year ago
We will both be on the loan, just signing it as an LLC.
Generally a 50/50 split is the way to go, for equity and cash flow. Any reason the investor wouldn't be on the loan with you? If it goes south you will be on the hook.
Is he going to cover 100% of the repairs after it's rented? Potential eviction costs?
@Peter T. I've also done a deal like this in the past, one of my first. I had credit but not the cash, so he provided the down and I put the loan in my name. We split everything 50/50 after that. That worked for us, and allowed me to get my foot in the door.
I should clarify that we'll both be on the loan now, just as an LLC. He is providing all of the cash needed I am providing the brain power and management of rehab and the property.
Your knowledge and connections is worth at least 50% of the deals. If he knows anything about real estate he would agree with this. I have partnered with guys and ran a 50/50 split and I brought all the money to the table and half the work as well. Great deal for the other guy but many great things came from this. We developed a relationship and have done more deals/we both learned/we both gained each other's contacts and developed a stronger team/we made money!
Each relationship is different but your have the connections/knowledge/drive/education/experience/time/etc. Not saying your potential partner doesn't but if he strictly only wants to be the bank then 50/50 is more than fair to him IPO. Make sure to get an operating agreement set up with the LLC before you dive into all this!
Oh BTW I'm in on student rentals as well (Southeast Market) -Good luck!
Just updating this. Now he wants me to pay him back up to 30% of the down payment + any repairs that would need to be done to get the property up and running. Our split is still 50/50. I can pay him the 30% via my equity if we sold/refinanced or through my cash flow (would take 3+ years). Wanted to get thoughts on this if anyone has any.
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