Investment Structure Advice

[Paul Daniels]

I am an experienced investor/contractor who specializes in flips in New Jersey.  Even in this tough market we have been able to do pretty well this past year.  With it becoming harder than ever to acquire new properties we are looking to get into the commercial space.  I am looking for some advise from some seasoned professionals on the best way to structure this commercial deal.

I am currently negotiating with the seller to purchase a mixed use property for around 270-300K.    It is a commercial storefront and 4 rental apartments above.  The property is located in an opportunity zone.  The property is currently vacant and in total disrepair.  We will need to invest around 250K to renovate the entire building.  This is in a C type area.  The conservative rent roll is approx. 6K a month.  The after repair value should be right around 500K or so.  

I am using private money from an investor partner for the initial purchase as well as the rehabilitation.  Since I am a contractor I will be facilitating all the repairs to the building.  Once the repairs are completed I will be self managing the building and handling all aspects of operations. My question to the group is what is the best way to structure the deal between myself and my investing partner.  I could do a sash out refi and take a long term mortgage and cash flow around 30K a year but that would include giving away 308K in interest payments over the lifetime of the loan.  I would prefer keeping my investment partner on board long term as an equity partner.  However, it would have to be attractive to him and I do not want to take forever and a day to get him his money back.  I was thinking of something along the lines of a quarterly payment of all the proceeds minus expenses until the total loan amount is paid back.  At that point the project would convert to an equity percentage. I have not come up with what the equity percentage would be.

I am open to all advise and suggestions on what would be the best approach.  My investing partner is also a close friend whom we have done many fix and flip deals together.  Thank you everyone in advance for your input.

All the best.