Updated almost 6 years ago on . Most recent reply
equity structures in STR's
BP'ers:
Newbie here. Going to build a new STR.
Projected all in cost of $400,000. Have a friend wanting to put in $100,000. I paid $43k for the land and it appraised for $50k. I will finance the remaining $250k. Offered him a promissory of 10% but he said he'd rather be "equity". He's okay with me buying him out eventually. I've seen equity offerings in various industries, but curious as to a recommended, or typical, equity structure in STR real estate. He puts in 25% of the project cost so he's 25% equity? or, because my side is debt his equity is more?
I realize the pro's and con's of an equity partner so i'm just curious on recommended structures. I'm willing to not be greedy because he has the means to do multiple deals with me to allow me to scale at a very quick pace.
or, suggestions of another, simpler, structure.
-$400,000 project
-I have $50k in
-I have 100% of the 'sweat equity' and will do 100% of the ongoing management
-$100,000 investor (100% silent)
-he's okay with me buying him out when I have the additional capital
-obviously if i were to sell (which I don't plan) he and bank would be made whole before I got a dime.
--helps me keep cash free add other properties more rapidly and keep banks more friendly.
Thanks for any and all input.