Hello Friends. Heres the scenario:
My Father, another partner and myself are looking to acquire a unique property. It's a waterfront mansion built in 1888 on 5 acres with 10 rentals only 1 of which currently rented, 1 owner occupied, with the potential for 2 more provided we subdivide and build them out. The project needs a fair amount of work, roughly 100k-135k in rehab costs. Appraised value is 560k, ARV roughly 700k, entertaining an offer for 430k. I will have harder numbers by the end of the weekend. There is a lien for 94k in back taxes. The initial idea is to hold on to it, refinancing after a year. We should be able to get it cash-flowing $1,400 per month within 60 days from acquisition. (Some of the units are in decent shape and only require cosmetic repairs).
1) What structure do you think best? A 3 member LLC, 3 Separate LLC's, or something else? (Also, I currently live out of state, the project and both partners are in NY, I live in TX, we all have at least 1 LLC currently.)
2) We have the 87k-100k in hand for down payment, however we need to find the best way to finance the additional principal, as well as the rehab costs. What are your ideas?
Any input with sound reasoning is much appreciated. Thanks!
Not considering if this is or s not a deal, my comments are based solely on structure.
A new LLC with 3 of you as members or manager members with an operating agreement spelling out all your agreed terms is the best in my opinion. (Consult your CPA or real estate attorney as I am not one and my advise is not to be construed as legal advice).
You all have your own entity or entities already but for this project, you don’t want to involve those other entities. So many reasons why And they are all negative. Plus, the entity should be in the atatebin which the property is located.
Financing - If you qualify and thevproperty does, a conventional bank loan is an option that comes with lots of hoops to jump through but gets you the lowest rate. Hard money is another option, comes with less hoops but at a higher cost. Private money lands in between these two and is almost always my first choice though, on a long term buy and hold play, the conventional loan is the best for a number of reasons. Lastly there is the option to bring in a 4th partner who funds the balance..
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