50-50 Equity Split doesn't seem right

[Amber Boskers]

Here's the scenario:

Have been approached with a 12-unit apartment style complex deal.

Absentee owner looking to sell

Off-market

Rents $300/Unit Below Market Rents

2 units - month to month

10 units - 12 month leases

Wholesale deal

$1,600,000 purchase price

$200,000 rehab budget

$50,000 closing costs

$24,000 acquisition fee to wholesalers

Property is free and clear.

$500,000 cash from two investors

$75,000 cash from wholesalers

Wholesalers will oversee rehab and manage property.

Financing the rest, intend to refinance in 3 years after stabilizing complex by renovating units and bringing rents up to market standards. Two year time frame for rehab. 3-4 week vacancy per unit for rehab.

Wholesalers want 50-50 split on rental income distribution. 50% to wholesalers, 50% to cash investors.

There are several things I don't like about this deal:

1. Not enough cash upfront.

2. Too much debt because of #1.

3. Two year time frame for rehab is too long. 4. Don't like 50-50 .... Looking for feedback about this from seasoned multifamily investors.

Thoughts?

[Joe Villeneuve]

Originally posted by @Michael Plante:

I am confused as well 
I would delete the post and make a new one

I don’t think we need to know the details such as current rent etc etc 
just the important facts 

Who is doing what and who is paying what 

 Gotta agree 100% here.  

Here's how I do splits for partners.  They are based on what each partner is responsible for, and/or what active roles they take.

Whenever I do a partnership, the other partner usually wants 50% automatically...even though they may only be bringing in the cash.  The way I do it is as follows:

1 - Have them, and you (mine is already made) make a list of all the roles and responsibilities that have to be filled by the partners.  

2 - Compare lists to make sure all items are included.  No percentages are applied yet.

3 - AFTER the list is made, each partner. on their own, applies percentages to each item on the list.  You'd be surprised how the total percentages add up to over 100%.

4 - Now compare.

5 - Adjust the percentages on the list.

6 - Apply each role/% to each partner and add them up.

7 - The totals are what each partner gets.