Money Partner Deal Feedback
Ok so a co-worker and long time family friend of mine is also a successful commercial real estate investor in my area. When he learned about my plans to begin investing in real estate he wanted to get involved. I am 1.5 years out of college so I have about enough saved for a 3% down payment on an FHA Loan on an ok multifamily... i.e. not a lot of capital. We sat down after work yesterday to try to come up with a deal that works for both of us. What we came up with and what I am looking for feedback on is whether this sounds like a good deal and anything I need to consider that I may not have.
He wants to start an LLC with me 50/50 ownership. Problem is I don't have the capital to put the down payment down. So our solution is to have him put 100% of the down payment down into the LLC. 50% would be his down payment and 50% would be a loan (no interest) for my down payment. I would act as the live-in manager for the property for a gross rent fee of 10% - market rate paid by the LLC. That money (as well as surplus from my W2 job as an engineer) would be used to pay him back personally until I cover my half of the down payment. After that It would be as if I had the money today.
Budget is a bit all over the place. He stated he only cares about long term ROI on the property - mainly focusing on sustainable cash flow with the reasonable possibility of appreciation. So far we have looked at 150k-500k buildings and he said he would be willing to go up to $1M if it had a good ROI.
Location is Louisville, KY.
This seems like an awesome deal for me considering I get a massive amount more leverage with him and this could be a jumping off point as well as being on the better end of the current value of money deal. I am planning on getting a contract agreement drafted by a lawyer before we purchase a property.
All constructive feedback is greatly appreciated.