70/30 Equity Split deal. What to look out for?

[Trever Johnson]

Hello. I am looking at a deal where the equity split is 70/30. 30 being the investor. 3 -5 year hold.

I wanted to know if anyone has any experience as an investor in this scenario.

What to look out for?

What is included in a deal like this?

Is monthly rent cash flow included in the 30%? If so is that taken from the total rent received for the month or after expenses are paid? After mortgage is paid?

Any insight will be very much appreciate and expertise that anyone has.

Thank you

[Evan Polaski]

@Trever Johnson I feel like more info is needed.  The 70% goes to the operator.  Is the operator doing all the work firsthand or hiring out a lot of it and acting as an asset manager?  Is the operator putting in 70% of the cash?

In general work needs to be compensated.  On a single family, even an 8 unit, management fees in my area are 10% of gross revenue, leasing commissions range from 1/2 month to 1 month rent, so call that 6% of gross.  Construction management can be 15% of total cost, bookkeeping is often a $100/hr.  Real estate commissions are 6% for purchase and sale of small properties.  If the operator is doing all those functions on a single family or duplex, and taking ownership instead of charging for it, that could make sense.

If you are talking about a large syndication, that type of return seems out of line with market.  70/30 with 70% going to investors is more common.