Partner Cash flow split on a MFH

[Bab Adetiba]

I located a mfh, ran the numbers, and formed the necessary relationships on a MFH 26 unit deal. A partner wants to fully finance the deal. I will not wholesale the deal.

As someone who won't put any money down, what should I expect to split? I would love to have 8-15% ownership/cashflow in the deal. Is that an optimistic structure?

I also want to add that the property has the margins to command a 15/75 split. With that 15/75 split, the partner gets 26% COC and gives the partner the monthly $3,500 + returns they are seeking.

In addition, how do I classify this partner? Would the partner loan my LLC money with a promissory note or should I start a partnership LLC with this partner and have the aforementioned structure mentioned in the operating agreement? I am leaning towards the latter and intend to execute this type of deal many times with many partners.

I just need a little direction. Thanks!

[Brian Burke]

@Bab Adetiba if the property supports a 15/75 split, where is the other 10% going??

In this case I'd expect your partner to be an equity investor, where he is a member of an LLC that you'd create specifically for this deal and you would be the LLC's manager. What you are describing doesn't sound like a loan scenario. You wouldn't be using a promissory note, the terms would be spelled out in the LLC operating agreement.

As to the split, it could be whatever you can negotiate with the partner, and it’ll depend on what you are bringing to the table.  If you found the deal, shopped for a loan and qualified for the financing without the partner’s assistance, are managing the property (or managing the property manager), overseeing the rehab, are responsible for the financial plan and exit timing, etc, you could command a higher split than you could if your partner was doing one or more of those things.

I’ve seen deals all the way from a straight 50/50 down to a 12% pref with a 80/20 split. So it all depends...

That said, if you are projecting a 26% COC, you should go back and re-scrub your numbers. It's very likely that you are either under-projecting expenses, over-projecting Income, not including all finance costs and/or capX reserves, or underestimating the amount of capital needed to complete the deal (or even all of those). Or I suppose you could just be getting one of the most amazing real estate deals I've ever seen.