How many persons should I try to bring in to this deal?

Question

I recently came across a 16 unit multifamily complex that has some pretty attractive qualities. I am extremely interested in pursuing this property, but I have little capital until I graduate and start working in May. The property is listed at $977k, so I'm not sure if I would be able to find a single person to partner with who could provide the down payment. Would I be able to structure the deal with a lawyer where I could bring multiple (2 or 3) investors in to this deal? I appreciate any advice you seasoned investors can offer me.

Lennon Lee · Answer

You probably want to partner with one (or two) investor in a JV structure. On that JV each one of you would have active roles according to your areas of expertise.

If you have the idea of  bringing passive investors into the deal where they only provide the capital and have no active involvement in the execution of the business plan and operations (ie passive investor), then you would be moving into Securities land and that's an SEC regulated world.

I wouldn't recommend you play under that structure on a deal of that size.

I'm no attorney and this is just my opinion from experience. You should for sure talk to your real estate attorney and get professional guidance.

Seth Ferguson · Answer

Hi @Cameron Ysidron,

If the deal is good, bring on whoever you need to make it happen. Consult a lawyer about how you structure the deal...you don't want to inadvertently break any laws.

Henri Meli · Answer

@Cameron Ysidron I'm assuming you performed an in-depth analysis of the numbers and they meet your actual and realistic goal. Hopefully you have not relied solely on the numbers provided to you by the seller. You MUST do due diligence on these numbers.  I'm also assuming you have created a realistic business plan around the goals you have for the asset. If you are planning to attract partners (capital partners, since you don't seem to have $$$), then you need to be twice as careful ... What level of experience do you require from your partners? Since you don't have a w2, I believe it will be quite difficult (not impossible) to get a bank to loan you money for this asset.

Scott Smith · Answer

Ultimately, you should bring on as many partners as you need to make the deal work if you want it. At that point you are adding a dynamic of partnership into the investment that you will also have to manage, so it's important you lay out all expectations prior to partnering with anyone in this, financial or otherwise. Finally, make sure you set up a good structure that can keep everyone as protected as you can. Here is an article breaking down the different filing statuses of common companies/corporations, it might help you when approaching this issue.

Definitely get a good attorney in on the deal to advice you and put the legal pieces together correctly!

Alina Trigub · Answer

@Cameron Ysidron

You may also consider wholesaling this property if you cannot find partners to work with.

Amy Wan · Answer

If you end up doing a joint venture, you should negotiate out terms with the partners you bring in and then talk to an attorney (unless you need help in negotiations to figure out whats fair for terms); if you decide to bring on passive investors instead, you should talk with a securities attorney as soon as you get the property under contract. Basically, it depends on what your strategy is going to be in terms of having active or silent partners.

Scott Smith · Answer

If this is the first time you are setting up a partnership I would say there would be benefit to do both, actually. Meeting with an attorney to establish the "concept" of what entity you want to establish, which helps you when talking to potential partners. You can explain what the entity will look like, how it will function and what kind of protections will be available to anyone wanting to work with you - it is a valuable piece of due-diligence. Do you NEED it? No. You can get a good feel for what you will do when talking to partners. Once you have your final group, that is when you need (in my opinion) to get everyone on the same page. Have all the partnerships join the consult with the attorney. There is tons of information, and misinformation, regarding different asset protection strategies. It's important to make sure you and your future partners are on the same page and filling the functions you decide upon.

This is not legal advice, simply my opinions as a real estate investor.

Cameron Ysidron · Answer

Scott, thank you for the advice and the link. At what point in this process do you recommend meeting with an attorney? Should I wait until I've found whoever I would like to partner with?

Cameron Ysidron · Answer

Hi Henry, thanks for taking the time to respond. I've taken some numbers from the sellers proforma, but accounted for some cushion on the expenses in case they are higher than what is listed.

For a business plan all I really have is a short list of improvements that could be made to the property. What else would typically expect on a business plan? As far as management goes I would like to find a partner that has experience in that aspect so I could learn from them.

Lastly, I actually currently work part-time for my future full-time employer. I also have a considerable amount of scholarships. Perhaps together I could still qualify for some loans?

Again, I appreciate the response.

How many persons should I try to bring in to this deal?

Most Popular Reply