All Forum Posts by: Robert Shaw

Yes. Sponsors typically charge a management fee 1-2% and if it's a large raise that requires broker dealer reg, 1-3% on new money invested.

Investors are part of your LLC. They own a percentage of your company. There is no "paid off" after refi, only the operating agreement or what is stated in your PPM. Pref return first, then return of capital invested, then a split on all future profits derived from income and sale until the LLC dissolves.

This is equity, not debt, so they own a part of everything the LLC owns.

Sponsor don't get paid during the holding period of the deal other than a management fee. Investors want to get their money back first. Of course you can structure it however you want. You can say after preferred return, the GP gets a "catch-up" return of x%, and then return of capital invested, then a split. Then that split will favor the LP because you got some profit upfront as well. 

When I raise a fund, I always look after investor money first, and have to wait a few years to get my share. I look for projects with high IRR to make this work, otherwise, you won't make any money after pref.

Of course the above includes an exit. Exit means a sale. Even if you refi it's not a sale. All projects have to have an end point in the projections in order for you to calculate CoC returns, unless you tell your investor we're going to hold on for cashflow forever. In that case, profits will be split the same way, just the returns will be lower since it's over a longer time horizon.

Here's an exmaple:

A project comes up and the sponsor wants to do a $1M project that will IRR 15% and exit in 2 years. The sponsor (general partner) says I'll pay 8% preferred return, then we'll split the profit 50/50.

The investor (limited partner) invests $800K, GP invests $200K.

Project level year 1 makes 150k. year 2 makes 150k, total is $300k profit

That 300k goes through distribution waterfall and gets split in this order:

1) $64,000 goes to you, the LP first. (8% of $800k invested)

2) Return of capital - 800k you invested in the syndicate

3) Remaining profit $236k gets split 50/50, so you get $118k more, GP gets $118k

So as the LP, you got $64,000+$118,000=182,000

$182,000/800,000 invested = 22.75 CashonCash return in 2 years.

Syndication is simple - there is a waterfall which outlines distribution. We typically will do a preferred return of 8%, then the return of investor money, then a split depending on the project. Sometimes there's a high water mark on the split as well. Something like LP 60% GP 40% until LP hits 15% IRR. Thereafter, LP 25% GP 75% for example.

Obviously, the project level IRR has to be very good otherwise, you'll end up with very little as the sponsor.

Your PPM has to spell out all the detailed expenses, related party transactions, fund and investor level costs.

You may also need a broker-dealer registration if you're soliciting money publicly, and the money had to come from qualified investors.

hire a building/home inspector

no

Buy mobile home parks in the midwest, or anchored retail centers.

Different market to market. 

I haven't seen any good deals from wholesalers. Their numbers are fantasy, and what they sell you is retail. Source your own deals.