Equity Investor for Ann Arbor Campus Property

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Equity Investor for Ann Arbor Campus Property

Jason HillPro Member
Rehabber · Brighton, MI · Member since 2013 · 4 posts · 0 votes

Hello,

My partner and I are looking for an equity partner for a deal on a hold property in Ann Arbor, MI. This is a high rent district where there is already a shortage of housing for the student population.

Currently it is a single family residence, 2 bedroom, 1 bath + 2 halfs. It is 3 stories plus a basement and overall in really good shape. We're buying this from a private seller.

The offer we're almost done negotiating will require 20k down. Additionally we need to finance roughly 35k in renovations for converting the house from single family to a student rental. We plan to have a total of 5-6 bedrooms, 2 baths and 2 half baths by the time we're done. We also need to repair 2 porches. Some other mostly cosmetic modifications will be done to make this a legal rental for up to 6 people per zoning.

We will have a 2 year interest only land contract with the seller benefiting us with financing. After we own the house for 12 months, we plan to refinance it to pay off the seller. We already have confirmed with a bank the ability to do this coming from a land contract. We would place it on a 30 year mortgage in order to maximize cash flow.

Our intention with this is to hold it for at least 2 years if not longer as it will cash flow very well. We are also planning to place it under rental management with a well known property manager in Ann Arbor who specializes in student rentals for 7% of the rent. If there is an opportune point in time to sell afterwards we might consider it.

For a $55k investment we are now offering a 15% stake in the property profits. Return of the principle would be at the time of sale. The other option we would like to offer is a 5% stake for a $20k investment. This also is a long term investment with the principle returned at the time of sale. Earnings are on the percentage of cash flow from rent (distributed regularly) as well as profit when we sell.

Please contact me for more information on this deal! Thanks!!

Jason Hill

734.845.9862

[email protected]

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  • Paul Jamgotch
    Investor · Grand Rapids, MI · Member since 2012 · 158 posts · 49 votes
    12y

    Best of luck on this as Ann Arbor is a great town. I calculate CAP at 3-6% for one-year use of $55K depending on number of students, if you are including & marking-up utilities, and time it takes to rehab. Since you plan to refi this in a year and PML has all the risk until then, I would think 70% of net income is appropriate because its 100% financing.

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  • Jason HillPro Member
    OP
    Rehabber · Brighton, MI · Member since 2013 · 4 posts · 0 votes
    12y

    Thanks for your message Paul!

    We're looking at less than 2 months rehab and to have tenants in by August 1. The year to year return on cash flow profit is 3%, however the better part of the deal is when we sell, the share of profits will be distributed as well. Here is the breakdown I have. It assumes a 2 year hold and sale. I also have conservative 2 month vacancy, which is not likely, but good to use in the numbers. I've ran numbers on 2 ARVs based on market and appreciation:

    Returns with 55k @ 15%

    Total 2 years plus sale ARV 1 with realtor $10,414.50 19%

    Total 2 years plus sale ARV 2 with realtor $16,752.00 30%

    Total 2 years plus sale ARV 1 without realtor $13,789.50 25%

    Total 2 years plus sale ARV 2 without realtor $20,352.00 37%

    Returns with 20k @ 5%

    Total 2 years plus sale ARV 1 with realtor $3,471.50 17%

    Total 2 years plus sale ARV 2 with realtor $5,584.00 28%

    Total 2 years plus sale ARV 1 without realtor $4,596.50 23%

    Total 2 years plus sale ARV 2 without realtor $6,784.00 34%

    I see your point in the risk of loss is on the investor. What would you need to see to reduce your risk?

    Thanks,

    Jason Hill

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  • Paul Jamgotch
    Investor · Grand Rapids, MI · Member since 2012 · 158 posts · 49 votes
    12y

    I didn't realize that the investor would get a piece of sale so that changes things (and why I posted here to try to flush things out). In my opinion, I think you would get better results by disclosing purchase price, expected monthly rent receipts, and precisely how long you expect to need the money. From there I think a PML might be better able to determine what is fair and what is needed. Projecting future ARV is tricky at best; determining value based on income and total investment is a little more straight forward IMO.

    Personally I am not looking for >6 month projects. With that said, to be in 2nd position on a home that is fully leveraged (minus upgrades) I would think a PML would want to net 13-15% APY for this to make sense. You might try an 8% note with an equity share but I think you should cap the term at 2-3 years. Once you have the term, purchase price, and expected rent you can back your way into 13-15% return to PML. With that said, be careful about marketing hypothetical returns because of compliance & regs. The 8% locks in 'something' for the PML and equity share will be icing on the cake.

    Sounds like a great project. Maybe we'll rent from you if daughter decides to become a Wolverine in fall 2015.

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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    12y

    12 to 15% interest is available on 50 - 60% LTV first position notes with borrowers having substantial money invested in the deal.

    Why would someone invest in a second position note and have to rely on appreciation at time of sale to earn a lesser return?

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
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