First Deal Structure

[Jeffrey Ward]

I've been running some numbers on some properties, and I was wondering what is an attractive partnership for investors. Since I'm not looking at fix and flips, I think hard money is out of the question since there would be no good way to pay it back. Here's something that I looked at (6 units), but I have much larger and smaller ones that I've considered as well.

Current rent: $1278

Yearly values:

Gross income: $92,016, 10% vacancy, 55% expenses (initially)

NOI: $37,266

8% Cap Rate => $466,000 value

I need 25% down = $116,500

Loan costs: $23,900

Yearly return: $13,366

So I was thinking of structuring a partnership 70/30, where I "only" make 30% for finding the deal, getting it closed, and running the operation. They get 70% for funding it. That's $9356 per year or 8% return in cash flow paid quarterly. The exit strategy would look like maybe 5 years of slowly raising rents, and reducing expenses.

Exit: 

Rent $1350, 10% vacancy, 50% expenses, trying to sell at 8% cap rate of $550,000 roughly.

Profit: $84,000, Investor gets $58,800 + $46,780 cash flow = $105,580 = 91% return over 5 years. I feel these numbers are conservative, but I wouldn't want to promise more than is possible.

So, do these kind of numbers make sense? Or should I be trying to do something totally different?