Equity Structure??? Does this sound fair??

[Billy Guyette]

I'm working with an investor who has a fairly large amount of capitol to invest, and/or access  to it. There are a few deals in my area that I would like to pursue, but don't feel like I should devote my time and resources unless I can own 50%. My investor wants to leverage his money, so on each project he would only put 20% down, financing the rest at around 3%. Could I structure the deal where he paid the 20% and I would pay him my half (10%) of the down payment through cash flow? So I would be paying half of the primary note and a secondary note paid to my investor until we reach parity with the down payment. I would be his "boots on the ground". It would be a passive investment for him. Has anybody done anything like this? Is it fair to both parties? 

Billy 

[Aaron Pfeffer]

Love the creativity...haven't heard of a specific structure like that.  

Regarding it being fair, the question I have is...as compared to what?  As in, you paint a scenario of what you want to accomplish for 50% ownership, but don't actually say what the alternative is.  Are you currently buying property with him now and you are both putting equal amount down payments in and equal amount monthly payments but he owns more than 50%?  More specifically, what IS your current ownership and contribution structure with this investor?

In a vacuum, if this is the only scenario you were presenting for 50% ownership, then I would hesitate to call it fair.  At the end of the day you won't have skin in the game.  You might share in the monthly payments, but it's his down payment at risk.  And then you're relying on cash flow to pay him back your portion of the down payment.  That's the interesting part.  Maybe once the full half of the 20% down payment has been paid back you should own half, but until then, maybe more of an escalating ownership scale?

Say you own 20% now for sourcing the deal and making half the monthly payments on the mortgage, then 35% when you've paid back 50% of the 10% for your portion of the down payment, and finally you get your 50% when you've paid 100% of the 10% to him.  That might be more fair.