What is a fair split?

[Natalia Benshaw]

I am in talks to partner with a firm that specializes in short sale negotiations but buys alot of the deals that come in and mainly flips them. I have been focused on building my multi family portfolio but don’t have the capital to do each deal alone. We have discussed myself coming on board with their firm to head up finding multi-fam deals to BRRRR and stack properties. If they are putting up the capital or raising the capital and I am finding the deals, handling the financing and overseeing the rehab what would be a fair arrangement for equIty in your professional opinion? I would be utilizing some of their staff for direct mail campaigns and for additional research on market analysis. Also, what is a fair return for a capital Partners as far as interest on their money (down + closing costs) is concerned and what is an ideal repayment schedule for any principal that is not returned once the property is refinanced? Thank you in advance for sharing your thoughts/experiences!

[Theo Hicks]

For a first time syndication, a 70/30 split (with 70 going to the investors and 30 going to the sponsor) is fair. So, the investors would get 70% and you and your partner would split the 30%. The person doing the capital raising typically gets anywhere between 30% and 40% of the sponsor portion (so 30% to 40% of the 30%). Maybe lean towards the higher end of the range because they are involved in the marketing as well.

8% preferred return is a standard offering to investors.

Usually, investors don't like being completely cashed out at a refinance, because they want to participate in the upside at sale. Any equity returned usually reduces their capital account balance, so the preferred return amount is decreased. You will return the remaining equity at sale.