Investor partner advice

7 Replies

We are exploring the possibility of bringing an investor into our land deal and would like your input.

We currently have an option on land. Our contract is "buyer friendly", due to the fact that we have been in contract for 3 years, without a close date. We also have 20% seller financed. This is a good size deal that is over $2 million.

How is a typical deal structured if an investor fronts all the money?
What percentage of ownership is typical for financing a deal?

If more information is required, please let me know.

Thanks for the help.

Originally posted by "wrigley":
We are exploring the possibility of bringing an investor into our land deal and would like your input.

We currently have an option on land. Our contract is "buyer friendly", due to the fact that we have been in contract for 3 years, without a close date. We also have 20% seller financed. This is a good size deal that is over $2 million.

How is a typical deal structured if an investor fronts all the money?
What percentage of ownership is typical for financing a deal?

If more information is required, please let me know.

Thanks for the help.

I don't know of a standard structure for this type of deal.

I would start by figuring out how badly you need the investor. You may have a purchase price low enough that with a 20% seller 2nd you can get financing through non-conventional financing.

Then you would need to weigh the pros and cons.

100% Investor finacing=partnership/non-conventional financing you will pay higher fees and interest and you will bear the full financial burden.

If you can structure a deal with an investor who takes a limited participation you may be better off with an investor. Or you may find an investor who is an asset (experience) to the project and it would not hurt to give them a controlling or equal participation. Then there is always the combination of a limited participation for the required down and bank or non taditional financing.

Start with the ROI the investor (who is fronting the money) expect. If it is investing 20% of the $2M (or $400K), and he is looking for at least a preferred return of 10%, then he should be getting at least $40K annually of the resulting cash flow.

I don't know what your anticipated cash flow is, but let's say it's $60K. In order for your investor to receive his preferred return, he would need:

$40K / $60K = 66% ownership

There are lots of other factors, but this is one way to look at it...

[quote="czseller
I don't know of a standard structure for this type of deal.

I would start by figuring out how badly you need the investor. You may have a purchase price low enough that with a 20% seller 2nd you can get financing through non-conventional financing.

Then you would need to weigh the pros and cons.

100% Investor finacing=partnership/non-conventional financing you will pay higher fees and interest and you will bear the full financial burden.

If you can structure a deal with an investor who takes a limited participation you may be better off with an investor. Or you may find an investor who is an asset (experience) to the project and it would not hurt to give them a controlling or equal participation. Then there is always the combination of a limited participation for the required down and bank or non taditional financing.

Thank you for your input. We will probably need to bring an investor into the mix. This is vacant land in a development corridor and obviously will not generate cash flow . Plus our investor has a wealth of experience in real estate investment, not to mention a wealth of cash.

There are so many ways that we can structure a deal such as this, that it can become confusing. Just a little apprehension with giving away too much ownership for investment dollars, when there could be other options?