Hi - If I am a GP and the profit split with the LP is 70/30. At 12% IRR, it goes to 50/50.
Wondering what happens if I am able to give all the money back to the LP with the return after a cash-out refi? Do I own the property fully now? Or the equity is split 50/50 now?
Only your share of the cash out refi is your money. I’m not sure if you’re the 70 or the 30. But either way if you take a $100k cashout refi either $30k or $70k of that is yours and the rest is your partners. THEN you can buy out their 30 or 70% of the remaining equity with your money.
But your switch to 50/50 is again a wrench. When you do the cash out what does the IRR become? Then maybe it becomes 50/50 at that point and again you have to buy out their equity at that point. Next time I suggest a simpler agreement with buyout terms written in to it.
If you’re looking to partner with this person again don’t have them leave the situation feeling screwed and looking for a lawyer.
Thanks I am an GP so it is 30. They get their money back with cash out refi but I am still unclear on how much equity they still own in the property
They get 30% of the cash out money because it’s theirs. Then they get 30% of the property or remaining equity unless the cash out triggered your 50/50 contingency. In which case they get 50% of the property or the equity.
@Cruz Gartner what does your operating agreement say about giving the LP their money back and ownership?
@Brian Adams Sorry its a hypothetical situation and I am just trying to learn. There is not even a deal atm