Bringing in New Investor

[Spencer Liddic]

Hi all! I've been reading the blogs/posts for the past few months now and this is my first post. Thanks for all the wonderful insight!

I am a buy and hold real estate investor with about 4 years experience. I have 14 units in total which I have been doing on the side- I have a full time job to pay the bills/down payments. A lot of friends/family members/peers have been watching me grow over the past years and would like to invest with me in my next deals. To me, I see this as a way to get into it full time (which is my dream) as they could help fund the down payments. However, I am not sure how I would set up a business in which both parties are rewarded fairly. I would be responsible for all the leg work (finding/managing/etc.) and they would provide the cash/financing. One potential investor in particular has been going back and forth with me on potential ways to structure the business. I would love to hear your feedback on ways that you structure deals/businesses where one party does the work while the other provides the cash?

Thanks again for your advice and look forward to heading back!

Kind regards,

Spencer

[George Krajacic]

Hi Spencer,

When I was flipping properties with an investor, the investor would provide all the money and I would do all the work. The net profit was split 50/50. However, I provided additional service by listing the property and not charge listing portion of the commission, this significantly increased investor’s profit. This arrangement worked well for flips that were turned over in less than 6 months.

For long term hold properties it is advisable for you to be on title as partial owner. How you structure the deal depends on how many investors are in the deal. I would recommend having an attorney prepare the agreement so you do not run a chance of breaking any syndication rules. In some instance syndicators provide 1% of equity contribution and get 10% of ownership and still get a share of profits, while investors get 4% to 8% preferred yearly returns and the percentage of the profit. Percentages of the ownership, percentages of profit split and percentages of preferred yearly returns all depends on projected property’s performance and desired return for investors.

Good luck,

George