Portion of equity split for KP on a deal?

[John Blanton]

It seems to be an interesting proposition as you can leverage your net worth to gain equity into a deal, but of course there is downside risk if the deal goes belly up, requires additional capital, or if the loan turns recourse (due to operator fraud, etc).

What is a fair expectation of equity split of the GP portion to KP a deal with the potential risks of liability? 

[Joel Owens]

What is FAIR will have different opinions. A sponsor on a deal might look at things differently then the passive investor. Then there is the deal size. 

You have to look at the sponsor operator and assess your level of comfort investing with them versus the expected BUT NOT guaranteed returns. Typical syndicators just starting out might offer returns and splits not generally seen in the market to get going. Those syndicators tend to be inexperienced and the chances of a deal failing can be high. So some might place tiny capital with them to test them out to see how they might do and have to be okay with losing some or all of the investment if it doesn't work out.

Just like a hard money lender lends to varying investors on flips. The proven flipper who has done 100 deals and most of them successful the HML lender has a proven client. That client for being proven typically wants a 7% rate or better on the money to keep their holding costs low. The newbie flipper investor who might make it or lose it all due to inexperience HML usually wants 12 to 14% and extra points. The HML lender wants to balance out returns from the ones that make it and those who don't so they turn an overall profit for the loan portfolio.

Watch out for syndicators that live off of making the fees. Those newer to the space wanting to quit their jobs might try to syndicate a deal of horrible quality just to get the acquisition fee going in. They then pray the deal will workout on a weak purchase with a high failure rate.

Look at investing with syndicators who would LIKE to have the money but aren't DESPERATE for it. Those tend to put a deal together only when it makes sense and odds highly in their favor for a successful outcome. You don't want promote too small on the back end for a syndicator or they simply will not be motivated to grow much equity upside on the deal when everyone else gets the lions share and they are left with the crumbs. It has to be greatly beneficial to everyone.