Exploring Pref Equity to Scale Group-Home Portfolio

[Michael Caldwell]

Hi all- my partner and I are building a portfolio of group homes. For those that don't know, group homes are single family homes that house "by the bed" and therefore come with many benefits, the primary being that they bring in anywhere from 1.5x - 2x the monthly rental income that a standard single family home would. 

As we're running out of personal capital to continue acquiring with, we're exploring a structure where we give investors an 11% preferred return that we buy them out of in 7 years. If payment isn't made OR if they aren't bought out in time, they own the common equity 100%. Does anyone have feedback on this approach?

[AJ Wong]

Quote from @Michael Caldwell:

Hi all- my partner and I are building a portfolio of group homes. For those that don't know, group homes are single family homes that house "by the bed" and therefore come with many benefits, the primary being that they bring in anywhere from 1.5x - 2x the monthly rental income that a standard single family home would. 

As we're running out of personal capital to continue acquiring with, we're exploring a structure where we give investors an 11% preferred return that we buy them out of in 7 years. If payment isn't made OR if they aren't bought out in time, they own the common equity 100%. Does anyone have feedback on this approach?

Private money is a proven way to capitalize portfolio growth but creates another business to administer. I would suggest connecting with a diverse lender for investment property mortgages. There are lenders that will allow group usages but I'd imagine most are residential and can be financed with a DSCR or other alternative income verification such as bank statements or an updated P&L. There are also lenders now allowing investment property HELOC's using alternative income. Check in with @Joseph Chiofalo for investor focused lending. He’s working adult care financing for a client here in Oregon. Good luck.