All Forum Posts by: Jacob Reeves

@Jacob Reeves it's up to what the two of you negotiate. I did something very similar with a couple of different investors but I structured it as a second with an interest payment and I was 100% owner of the property but leveraged to all my costs into the property and about 75-85% percent of the ARV of the property. You could also structure it like a mini (unregulated)syndicate and have a preferred return and a waterfall. Or Whatever you make up like you get nothing before the first 6-8% then 50/50 after that so if the return was 8% you make nothing if it's 10% you make 1% they make 9% if it's a 20% return you make 6% they make 14%. How return and what's counted is important. You could also just manage it and charge a percent for management. I do that now with my STR management company. Liability, profit or losses and responsibilities all need to be well outlined to prevent problems later. I almost didn't a partnership that ended up not going throw because after we tried to work out all the details including a couple thousand each for our attorneys drawing up the paperwork we never really came to a place that we were both happy with the contract. Don't worry about your age worry about your work and value you can add. I did a few of the deal I mentioned above when I was 22 and it is very possible.

@Jacob Reeves

Read the book Raising Private Capital by Matt Faircloth and The hands off real estate investor both sold by bigger pockets. Did a 50-50, in TN was told can do a trust and LLC with both holding companies or a LLC with both names as owners. You can do a DSCR loan 20% down to purchase with LLC or whatever local lender has the same rates will likely be higher or if someone can carry the mortgage someone buys the house with a second home loan honor the mortgage obligation and quit claim into an LLC. Negotiable terms will be in operating agreement, and would prioritize investor capital being paid back first, waterfall structure 93-7% than once he has all his capital back you get to split however you guys decide. Also I make sure you KNOW your stuff and have a very detailed business plan, and no matter what NEVER lose someone else's money as the deal provider you have a HUGE responsibility to protect and preserve investor capital and you better make sure that no matter what your investor gets paid!

I am also 20 so love seeing other young guys taking the leap, message me if you think I can help you, I’d love to add some free value.

@Jacob Reeves

I have no idea! Every situation is so different.  I would pay the several hundred dollars to an attorney to draft up an agreement.

I have done 7 units so far and only used my own money.  I talk too much about RE investing and that has led to a number of folks asking me about investing with me.  I didn't see how I could incorporate them until more recently.  You need MONEY, HUSTLE, and KNOWLEDGE to complete a RE deal.  I had all three at first, but now that I have deployed most of my capital...I'm gonna need money to scale.  So, I'm not much help because I'm in the same boat as you.

I read "Raising Private Money" from the BP bookstore and that helped a bit with possible deal structures.

I have asked this question on here before and @Ryan Moyer is right.  It is all over the place.

If all the money is mine, I can't imagine giving up much equity.  I'd be concerned what would happen if you buy too high and can't make it cash flow...do you pay?  Especially in your case as a newbie.  The risk seems astronomical to the cash provider.

If I were the cash provider and I believed you could do it, I would offer you compensation based on metrics.  If you knock this thing out of the park, you earn equity/cash payout/revenue split.  If you lose all my money, I pay you a low fee for your time organizing the transaction and ask you to leave me alone while I try to fix it.

To me it seems crazy that an investor that is putting all of the money up would give up ANY amount of equity instead of just revenue, but I know many deals are structured in a way that they do.  From what I've seen there doesn't seem to be any "standard" amount of equity those investors typically give up.  The numbers are all over the place I think people are really just kind of shooting from the hip on it.  I've seen as high as 50% (crazy imo), or on the flip side like I said if it were me I'd not be willing to give up any.

 I would say your best bet is to sit down with an attorney to figure that out.  It'll cost a few hundred dollars but will be well worth the money spent.  

There are so many ways you could structure this.  Talk to the guy and get a feel for what he would like, negotiate if needed then get everything in writing for everyone's protection.

Great question, I too am looking for a cabin in the Smoky Mountains. I would ask them what they feel the most comfortable with and go from there. Since you are doing all the leg work, I think splitting the cash flow is very fair, and a 60/40 or 70/30 equity split after the down payment is returned to the investor is very fair for them. They'll likely be able to get 15-20% CoC return even with split profits.