All Forum Posts by: Joshua W Sommerfeld

I think I posted this in the wrong sub-forum. Ooops. Sorry. I'm new to this whole forum thing... But thoughts still appreciated.

Hi folks -- I'm thinking about jumping into RE as a wealth diversification strategy, and trying to understand how the returns would compare to other alternative assets in my portfolio (private equity, hedge funds, etc.). Can someone please walk me through the basics on the typical parameters of a commercial RE loan for a multifamily property. What are the typical LTV, interest rate ranges, terms, balloon, interest only or P&I, etc. (I'm looking in Chicago, if that helps). At all the places I've modeled so far using a conventional mortgage with 25% down, there is basically $0 cash left if I use relatively conservative assumptions for repairs, management fees, etc. I feel like I must be doing something wrong. If I should actually be assuming a 10 year with balloon, interest only, at 4%, or something... that would be a game changer.

Thanks,

Josh

Thanks @Robert Leonard and @Franco Li. Helpful suggestion. What do you mean by partner in role, not ownership?

On #4, I'll definitely consult an attorney to make sure whatever we decide is airtight. I'd like to keep things as simple as possible, but one route I considered was holding BOTH of our takes in an irrevocable trust set up to provide for my father's livings expenses during his lifetime, and then to benefit my children (his grandchildren) thereafter, that way he feels like he is still leaving a legacy and we get around the thorny question of my step-family. It seems overly ambitious to start given minimal equity value, but it's a thought...

One thing I want to avoid is my dad feeling like my employee. But I do like the idea of a 60/40 equity split, and then giving him a 10% management fee (which he can use during his working years, and makes transitioning management to a 3rd party easier if/when it comes time for him to fully retire or the quality of holdings becomes unwieldy for him to manage alone).

Additional tips and lessons from people who have some battle scars would be most appreciated.

Hi folks -- 

I am new to this wonderful forum and excited to get involved. I realize partnership / profit sharing structure is frequently discussed here but I couldn't find an answer that matched my situation.

My goal: I am looking to start a partnership with my father, doing buy/hold rental investing (probably BRRR). My primary goal is to build a portfolio that will provide my father with income in semi-retirement and a sense of sufficiency. I would be the capital partner, my dad the "boots on the ground" (in TN).

About us: My father has been in construction his whole life (ran a masonry business, built our homes) and is in his mid-50s working as a handyman on the side of his physically demanding day-job. He has insufficient savings to retire (due to a string of bad luck after selling his masonry business). He does not have real estate experience but I feel confident he could manage a growing portfolio of properties through his prior business experience and exceptional people skills. I am a high income investment professional at a San Francisco hedge fund. In additional to helping my dad (who would work himself to death before accepting financial support), I'm attracted to the tax and diversification benefits of RE investing, but a financial return is a secondary priority (because I think I can more scalably generate a higher IRR elsewhere).

Responsibility breakdown: Given my skill-set, I'd run the investment models and likely oversee most of the tax/legal stuff but ideally gradually ceed control over time. I'd provide all the financing and it would be my income securing the loans, etc. My dad would do or oversee all the boots on ground stuff. We'd start with a couple duplexs/triplexes to get our feet wet and potentially graduate to larger multi-family complexes if things are going well.

So how to structure the partnership? Some options? 1) A 50/50 partnership is obviously easiest  and will "feel" right for my dad. But running the numbers, doesn't produce a very attractive return for me -- on a hassle-factor/risk-adjusted basis I'd rather buy him an annuity. 2) The math looks much better on a 8-10% preferred return + 50/50 on profits, but that really doesn't leave my dad with much. 3) Loaning him 50% of the downpayment, which he pays back through 3a) his portion of the net cash flow 3b) equity appreciation upon refinance. 4) Another thought, but not sure how this would work, would be setting up the hold-co partnership or trust such that 100% of his interests transfer to me (as opposed to my step-mom or half-brother) when he passes away (but my interests pass to my wife, if I do not outlive him).

Is there some better option that I'm missing? Some input on the practical realities of #4 would also be particularly appreciated. I haven't talked to him about this yet, but my sense is he'd likely agree to whatever I proposed so long as it wasn't overly complex.

Many thanks, and look forward to being more involved here.

Josh