Is my Apartment deal Ethical?

Question

I have a plan to scale up my investing but I am struggling with trying to decide if my plan is ethical. I am looking for input in order to take the next step or not.

My Father has a friend who is retired and living on a healthy income. The property he occupies is completely paid off and he wants to move due to a long standing feud with a few neighbors. He already purchased another residence and is selling his current occupancy For Sale by owner due to the fact that he cant stand realtors.

I Found a 16 unit apartment complex that I am very interested in but lack the funds for the down payment. Without getting into the weeds of seller financing, I had an idea to get into the deal. My thought was that I would approach my fathers friend and offer to buy his house. I would then present to him a business plan outlining my investment strategy that was detailed and thorough explaining that instead of the profits of his house just sitting in the bank I could get him a return on that money as well as a monthly dividend by investing in this complex. Having found the deal, completing the due diligence, managing the business of it as well as placing the appropriate team in place I would in turn receive a 50% ownership of the complex. I would manage everything and he would simply collect his portion of the net each month as well as share in the equity growth.

Is it ethical to present that deal and own 50% without putting any of my own money into the deal?

Ben Sears · Answer

@Timothy Gurule this sounds like the definition of creative financing. While you're not putting any money into the deal, you're putting in a great deal of sweat equity. This is what great real estate deals are made of. There is nothing unethical about presenting a potential deal to an investor and allowing them to make a decision on its merits. Good luck in your deal.

Scott Morongell · Answer

@Timothy Gurule the best part about real estate is no one deal ever has to be the same. At the end of the day, everything is up for negotiation. The better question to ask yourself would be, what does his return look like with have 50% ownership. The second part is, at 50% is his return better or worse than the typical investment options out there, stock, bonds, mutual funds, etc. If it is better, you have a valid proposal to him and a higher chance of him agreeing.

As far as buying his house, I'm not sure I would make buying his home contingent on also doing the apartment deal.

Theresa Harris · Answer

As long as you are clear about what you are doing and why, I don't see the problem.  make sure you sign a contract outlining what you will do and how the proceeds will be split...and what happens if one of you wants out.

Bjorn Ahlblad · Answer

@Timothy Gurule I agree with @Ben Sears you are describing a business relationship it is up to your father's friend. I would add that ethics is a personal matter we each decide upon our own.

Tim Delaney · Answer

It seems perfectly ethical to present to someone as long as you are open and honest about what you are doing and what your experience is. Whether they think it is a good deal or if your sweat equity is worth 50% is up to them to decide.

Tj Hines · Answer

@Timothy Gurule this is a great idea. The idea of you approaching your dads friend will take some guts but hey go ahead and shoot your shot. You retain 50% he puts up the capital. You run the day to day operations. Sounds like a match made in heaven. Go for it

Zoran Stanoev · Answer

If this is going to be your first deal, don’t be surprised if he asks for more than a 50% share. Since you’re not investing any money, you’ve got no skin in the game so if things go sour, you can walk away leaving him holding the bag.

Also, if you’re going to be partners, your partner is a co-owner and has an equity position and not a debt position. So you can’t guarantee returns etc.

Greg Dickerson · Answer

There are lots of ways to split profits and equity. These are no rules. It all depends on the deal, the investor and the sponsor and each parties goals.

Some investors would rather revive a higher preferred return instead of equity. Some w the other way around and many acombo of the two.

It all comes down to everyone’s goals and the best structure for the deal overall.

Shawn Coverdell · Answer

I was once married to a woman I nicknamed "Chance". Because there was always a slight chance she was telling the truth. Many people are just looking for public approval so tge

Based on what you have presented, yes this is perfectly ethical to me. But being accustomed to Hood ethics, I am almost certain there is more to the story based on the fact that you are questioning your ethics.

Shawn Coverdell

Homes in the Hood.

Ned Carey · Answer

@Timothy Gurule yes it is perfectly ethical to put no money into a deal if you are bring the deal to the table and doing all the work to manage the investment.

Being ethical and being a good deal are two different matters. Do you have the experience to evaluate and run such a property?

Is my Apartment deal Ethical?

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