Owner-Occupied 3-Partner Investment Scenario - Any Thoughts?

7 Replies

I have two investor partners  who want to do a deal that includes one partner owner-occupying a unit.  Do you think this structure is a good deal?

Location:  Los Angeles County

Partner 1 (P1)

- P1 wants to owner-occupy with family of four (spouse and two children)

- Prequaled self (not including spouse) for $435k.  Lender ran numbers assuming a duplex, with 2nd unit as income.   

- Down $80k

- $435k would only get P1 properties in South LA, which does not meet P1 standard of living, so P1 decided to get one or two more partners to increase buying power for a better location.  

Partner 2 (P2)

- P2 is an Agent and will use commission as carry 

- Maximum purchase price $1.2 mil.

- Comm. is approx. $20k. 

Partner 3 (P3)

- P3 will take out up to $200k from equity in SFR for down

Partners will form an LLC for the purchase

-6 plex, Two 2Br, Four 1Br

- Total Down = $300k (25%)

- Loan Amt. = $900k

-Terms = 30 year, 4.5%

- Monthly payment = $5600

- Monthly Expenses = $1000

- Rents = $9600

@Nina Grayson Looks scary. I guess you need to do what you need to do. I won’t do it though. Anything goes wrong or anyone wants to bail, cover what happens, who can buy-out who and for how much. Why do you need the P1 again? Seems like 200k will be enough for a 20% dp.

Originally posted by @Manolo D. :

Nina Grayson Looks scary. I guess you need to do what you need to do. I won’t do it though. Anything goes wrong or anyone wants to bail, cover what happens, who can buy-out who and for how much. Why do you need the P1 again? Seems like 200k will be enough for a 20% dp.

Thanks @Manolo D. 

It is scary, right?  Yes, $200k is enough for a 20% dp, but I was trying to increase the income to make it more attractive.  Also, this would allow all parties to get in on the deal.  As for the "what ifs," there is a contingency in place.  Three year commitment.  And when someone want's out, the equity share is calculated based on the % of initial investment.  So if one goes in at 8% and the others go in at 46% each of the total down, and the 8% party wants out in three years, each initial investment is amortized over the three years to determine each parties equity.  But yeah, it's scary.  

Thanks, 

Nina

@Nina Grayson Well, that’s the normal sharing, what if market dips, so the 1,000k (for simple computation, instead of 1,200k) one owns 10% and others 50% and another 40%. Now the property at year 1 is at 900k and 50% wants out, it will be a breach of contract but he doesn’t care, he wants out, he thinks at year 3, the property will be worth 750k. What will you do? I’ve tried structuring even just 2 parties, and i couldn’t even cover all the what ifs, i was on page 15 with a single space font 10 contract and i think I covered 30-40% on what I should cover. make 3k of 300k is already a bit scary itself. Good luck though.

Originally posted by @Manolo D. :

Nina Grayson Well, that’s the normal sharing, what if market dips, so the 1,000k (for simple computation, instead of 1,200k) one owns 10% and others 50% and another 40%. Now the property at year 1 is at 900k and 50% wants out, it will be a breach of contract but he doesn’t care, he wants out, he thinks at year 3, the property will be worth 750k. What will you do? I’ve tried structuring even just 2 parties, and i couldn’t even cover all the what ifs, i was on page 15 with a single space font 10 contract and i think I covered 30-40% on what I should cover. make 3k of 300k is already a bit scary itself. Good luck though.

 Thanks @Manolo D. ,  These partners wanted a Multi-Fam, but I think they are better off doing a Fix & Flip.  As passive investors, I think it's less of risk to depend on the market from 1-3 yrs. for a modest return when they have enough to flip a property in 6-8 months for a much higher return.  Thanks, NG

How did this unfold. or is it still in the works?

@Graham Nash  

Hi Graham, 

It's no longer in the works. I continued to reach out to P1, but she did not want the proposed scenario. I told her in our last conversation that since she's benefiting from living in the property, her share of the return on investment would be lower than others. I think she just want's passive investors to give her enough to move to a location she wants to live in ($2 mil and up) and not do an LLC. A bit greedy, but she's new.

I have no plans to do Owner Occupy partnerships - there's too much risk if you want to sell your share and they can't or if they don't want to move.  

Nina, Honestly, it seemed too complicated to work out well for everyone involved anyway. I'm sure you're better off without that deal. Hearing those numbers...reminds me just how location specific RE is. I could make some nice moves with the dp alone. Good luck!

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