Draper, UT · Member since 2016 · 3 posts · 0 votes
All,
This is something I have been trying to figure out for a while now. I was hoping someone with experience in partnering with investors to raise funds for a downpayment on a multi family deal could talk about how they and the investors get paid. If investors are providing essentially 100% of the equity/downpayment, how do you make money? I am aware of acquisition fees, asset management fees, etc., but I am talking more about money from monthly cashflow and sale of property.
Here is an example (E.g.,)
Let's say we have a 500,000 deal and we will need 125,000 for a down payment. We go to a family member or friend to raise the 125,000 dollars. Let's assume the property cashflows after debt at 10,000 per month. How should the 10,000 dollars be spilt between me and the investor, if at all? Also, what should the split be on the sale profits?
Real Estate Agent · Plano, TX · Member since 2015 · 734 posts · 511 votes
9y
@David Hudson there are multiple ways to skin the cat. Every syndicator has their own model and each does something else.
Some use a simple model of X%-Y% split, some offer preferred returns, some offer a waterfall structure, some only take debt partners, etc.
You need to sit with an excel file and decide what you need to make out of the deal and what your investors expect to get from the deal.
In your example, $10K represents a 8% return of the 125K capital your investors provided.
If the investors expect 6% you have 2% to decide how they split between you and your investors. If the investors expect 10% COC return on their money, you have a problem.
Lastly, the disposition is also calculated in the same way except you use an IRR formula to decide what's the value you can provide your investors given a certain split during the property disposition.
sorry if it came out too vague but it really depends on you and your investors. I've seen syndicators being as aggressive as 50%-50% split from the first dollar. If they a track record that shows their investors they will still make a lot of money, they can pull it off...
Investor · Edmonton, Alberta · Member since 2017 · 94 posts · 72 votes
9y
It depends on what your partners want, or are expecting. If someone is just an investor into the project, you simply pay them back their money at the end with a previously agreed on interest rate and you then keep the profit (if there is one) and on to the next project. You can also agree before you start to give the investors a percentage of the profit instead, or on top of the interest rate. They are lots of options here.