All Forum Posts by: J Scott

At the end of the day, it really boils down to two pieces of information from the seller: 1. The T12 income/expense statement. And 2. The rent roll.

With these two sets of data from seller, along with your own proforma income and expense data, you should be able to do a first pass analysis of the property to determine if it will meet your goals. 

Obviously, you're also going to want a good underwriting model that will allow you to look at this income and expense data in a way to determine if the property meetsh whatever you are specific financial goals are.  You can either create that or there are plenty of off-the-shelf models you can start with.

What happens if he doesn't perform on the renovation? What happens if he goes over budget? What happens if his quality is bad? What happens if he walks off the job?

Do you have the ability to fire him if he does a bad job or slips the schedule? Who pays to bring in new contractors?

I've seen the situation happen plenty of times, so make sure you discuss this contingency. I'm sure he will tell you that there's no chance that he won't get the project done on schedule, on budget and high quality. But until it's done, that's only talk.

@Mauricio Rauld at Premier Law Group.

We've been working with Mauricio and Bethany for many years, and they've helped us structure over $100M in syndications and funds.

If this is the first time that you're analyzing a deal, why are you so confident that it's not a terrible deal?

Can you share the basic numbers? Rental income, purchase price, loan terms?

Here you go:

https://www.biggerpockets.com/...

There's no two year requirement for a 1031, but it's true that you cannot do a 1031 exchange on the house flip.

The property must be intended to be held as an investment for a qualify for an exchange. And yes, you would need to work with a qualified intermediary It would collect the proceeds from the sale and handle the disbursement on the new purchase.

A couple things:

- There is no right or wrong way to do this or to split costs/expenses.  You two simply need to sit down and come to agreement on these things *before* you partner up;

- You said you let him borrow the money, but then you describe a situation where you are equity partners (you are sharing in the profits/losses).  Which is it?  Is he borrowing the money and he is making interest payments?  Or are you investing the money and you now have part ownership of the deal and you share in the profits/losses?

- With respect to the W9, you first need to figure out the structure of the partnership.  Do you have a partnership agreement?  An LLC that you share ownership of?  Something else?  What do you have that lays out your ownership interest in the deal?

Quote from @Dan Kennerson:

Interesting, thank you for the information. 
Does BP (or BP Pro) have a boiler plate LP agreement? Or do I need to talk to an attorney for that one too? lol. 

Syndications pool money from investors who have little to no control over the investment -- by definition, shares in these types of investments are considered securities.  So, starting a syndication or fund is going to be regulated by the SEC, and potentially state agencies as well.

As such, if you're considering starting a syndication/fund (or even just pooling money from investors for deals that you control), you're going to want to talk to a securities attorney.  They can create the documentation you will need to solicit LP investors, including the proper disclosures, business plan, verification of accreditation status (if you elect to only have accredited investors), contract, operating agreements, business/entity structure, etc.  They will likely also manage the compliance piece -- registering an exemption with the SEC, state registrations, etc.

The entire process will take a week or two (from the time you have all the information about the deal), and likely cost in $10-20K range.  But, a good securities attorney can make the whole process relatively turnkey so that you can focus on finding the investors and raising the money.

Quote from @Dan Kennerson:

 30-40% is really the norm? 

Are the LPs investing a significant portion of the capital to earn this? 

Typical multifamily syndication deals these days have a split of between 60/40 and 90/10 in favor of the LP, with 70/30 and 80/20 being most common.

Many syndications also have a waterfall these days, meaning that the split percentage changes as the deal earns more money. For example, it's not uncommon that you see something like a 70/30 split until the LPs receive a 15% IRR and then the split changes to the 50/50.

I've even seen deals where above a certain return (for example, at 20% IRR to the LPs), the split changes to 100/0 in favor of the GP.  In this way, the GP can pay the LPs a strong return and then they retain control of the deal and can keep the deal in perpetuity without an LP split.

And typically, the LPs are providing all the equity for the deal -- in general between 25 and 35% of the total capital stack.

Quote from @Vincent Plant:

@Randy Smith

I feel like I am in the same place you were. I have paved the way with SFRs and STRs, but I am realizing too that the passion is not there.

I have capital and am ready to turn the page.

Can you walk through a bit HOW you went down this road? What steps did you take? Were your goals? What did you do exactly to open these doors?

I feel like I’m walking into the complete unknown when it comes to passive investing.

 If you're looking to move into passive investing through syndications, I would highly recommend watching this:

https://www.biggerpockets.com/...