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Updated about 6 years ago on . Most recent reply

User Stats

28
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13
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Justin Yurong
  • Investor
  • Clovis, CA
13
Votes |
28
Posts

Apartment Purchase with 35 People

Justin Yurong
  • Investor
  • Clovis, CA
Posted

I've been working on putting together a deal with my friends, family, coworkers, etc. They would all be considered sophisticated investors. As of right now, I have an informal commitment of funds of $180,000 with 35 total investors (including myself). 

The quick and general idea is to purchase a small apartment building (5-16 units) in the Fresno/Clovis area of California, and everyone's ownership interest is proportional to the amount of funds they contribute. I wanted to structure it as an LLC, so that each investor would have limited liability unless they are going to be a guarantor on the mortgage.

I'm in contact with a commercial mortgage broker and lender, and it seems like lenders may require 60% or more of the LLC ownership to be guarantors (12 people, for this particular group). Ideally, it would be me and 1-2 other investors to be guarantors of the mortgage, not 12.

Has anyone had any similar situations? Have you found a better way to structure the entity so that not so many people would be guarantors risking their personal assets? Or, have you found ways to negotiate with commercial lenders to accept less guarantors?

Any piece of advice helps.

Most Popular Reply

User Stats

71
Posts
72
Votes
Angelo Wong
  • Investor
  • Milpitas, CA
72
Votes |
71
Posts
Angelo Wong
  • Investor
  • Milpitas, CA
Replied

@Justin Yurong - 35 seems like a ton of people for only $180K. Why not use like 3 investors at 60K each?

The average investment size is only $5K. It's going to be so much headache to juggle 35 people's questions, and you're going to need to deal with a MFH in Fresno on top of that.

To answer your question...I think a better structure is to get bigger investors in the deal, instead of 35 people for such a small sum. It also makes more sense, because this is probably going to be the first of many issues you're going to have with 35 people.

And don't get me wrong - I'm not against 35 people in a deal...but the deal should be fairly large to support that much overhead. Keep in mind you're going to need to send 35 K-1's at the end of the year and if you have a CPA do it...your margins better be enormous.

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