Large Multi-family purchase questions

[Kerwin Cabrera]

I am working on a deal for the purchase of a large multi-family (200+ units) and I had some questions about the process. I am planing on getting several investors to partner with me in order to acquire the property. Here are my questions:

1. Do I have to inspect every unit? How does the inspection normally work on deals like this?
2. How do I structure the deal so that the investors only get a percentage of the cash flow and not get to run the property? They will be aware of this.
3. If an investor wants to get out after a year or two, how do I handle their equity? Is it normal to structure something like, if you get out in less than x years, you only get x percentage of your equity?

Thanks,
Kerwin

[Ann Bellamy]

@Kerwin Cabrera,
I applaud your ambition and vision to take on a large project when you are new, but I think it's more a case of "You don't know what you don't know". This is the kind of post that makes me cringe. Your profile says you have only been investing since Sept 2011, so you don't have extensive experience in multi's.

I really don't want to discourage you, but this post makes me think that Dave Lindahl has been to your local REIA and you bought his course, and he told you not to listen to people tell you that you can't do large multi family investing when you are new.

The biggest issue for me is that you are risking other people's money when you don't have the experience to back it up. When you make a $5000 mistake on a duplex, it costs you $10,000. Of your own money. Ok, you recover and learn. When you make that same mistake on 200 units, it potentially costs you $1,000,000 of other people's money.

Here is a blog I wrote on the topic a while back:
http://www.biggerpockets.com/blogs/1513/blog_posts/11981-not-to-pee-on-your-cheerios-or-anything-

If you had progressed to the point where you were truly ready to form a sydication, as you outlined above, you would already know that you need an SEC attorney and probably a Reg D filing. A good SEC attorney will have several options for deal structure for investors, and what happens when an investor wants out.

Do a search on BP for threads about syndication, Reg D, SEC, etc, and you will learn a lot. But be very careful. In my area, a local investor was indicted by the SEC for misappropriation of investor funds. And he already knew what he was doing.