How to analyse a big deal and structure investors shares?

[Ivan Dimitrov]

Hello team. Newbie here.

I have 4 Airbnb properties that I manage (I own 1 and rent the other 3), so I'm not very experienced in real estate. But I saw a deal that I really like.

10 Unit property with potential to grow to 11 with a small investment on top. Also, a possible deal to use 2 more spaces for a total of 13 units inside the building. Price is 900k Euro, in the city centre (Sofia, Bulgaria). I think the price is fair for the location but I haven't checked if it's fair based on operations. All 10 units are less than year old, so they are in perfect condition to rent in Airbnb. Income fluctuated between 6 and 8k per month (Covid year is bad for Airbnb) with a single month of 10k income. Expenses are around 1.5 to 2k per month.

I've started calling investors and I have a couple of "Yes" over the phone, but I wonder how should I structure the investment part of the business. My initial idea was to separate the deal into 50k lots and invite investors, collect the 900k and purchase with no bank loan, then after the purchase, I will take a 15-year bank loan with the property as collateral and pay back most of the investors' money. Then each month the investors receive a small part of the income. After 5 years I would re-finance the deal for another 5 years and do another investor return.

Is that the normal way to structure a deal to investors? Are there better ways to do that? For example, should I search for 50% investors and 50% bank loan, then payout from the monthly income, or... something completely different?

One big question I have is – what (if any) should be my share for finding and structuring the deal? I think I can put only one 50k lot from my pocket, which is only 5.5% of the deal. Should I have a premium for finding and making the deal?

Another question is – how should I deal with closing costs? I expect that brokerage fees, legal and inspections can eat up another 50k (ballpark estimate).

I fully intend to manage the property, so I'm going to put a fair management cost in the expense plan, but I also leave room for finding a better property manager.

What should be the financial payout structure of the company? I was thinking of minimal payment per month for each lot and sharing profits on top. But also the possibility that investors would help (receive less or add from their pockets) in bad months – like the recent lockdowns.

Any detailed examples would be greatly appreciated!

To be honest, a deal this size is a bit scary for me, as I've purchased single-family apartments in the past, twice. And that was a long time ago...

Regards

Ivan Dimitrov