Private Money Deal Structure

[Mitch Hohlen]

Hey everyone! I'm trying to buy two multi-family complexes and have a few individuals who have committed to giving me private money to fund my down payments.  The two opportunities I'm working on right now are  a value add (110 units, $4.3M purchase price, $330K in rehab costs, and will need roughly $1.2M at closing).  The second is a buy and hold opportunity on a 15 unit complex.  (roughly 900k purchase price, and $190k needed at closing).

Does anyone have advice on how to structure the private money as a portion of the deal? Does it make sense to do it as a separate debt sleeve or will i need to give up equity and a % of the cash flow each month? I'm sure there are thousands of ways to do this, but I would love to hear what others have actually done. 

Thanks for your help!

[Theo Hicks]

If the people bringing the money don't have an ongoing active role in the deal, it is a syndication. You will need to work with a securities attorney on that deal.

In regard to returns and profit split, 8% preferred return with a 70/30 profit split is common on value-add deals. You could also put in a hurdle (for example, once a 13% IRR is achieved, the profit split goes to 50/50).