How would I structure an apartment syndication deal?

[Bellman Tumasang]

Let's say I want to get investors and syndicate a 10 unit apartment building. I create Blue Estate LLC ( manager managed by me ) and Blue Estate Equity Fund I LLC which holds title to the 10 unit apartment building ( manager managed by Blue Estate LLC )

Syndication fees are 1% asset management fee of total capital raised paid each your to Blue Estate LLC, 1% of purchase price paid to Blue Estate LLC and 1% of sale price paid to Blue Estate LLC. 70/30 profit split with 30% to me as an individual and 70% to investors. 6% preferred return.

The purchase price is $1m I put that $250k raised from investors. I finance $750k with an interest only loan with a 4.5% rate. 

I rent each unit out for $1k so 10 * $1k = $10k * 12 = $120k and let's assume 50% goes to expenses so an NOI of $60k.

That's a 6% cap rate when I buy the building for $1m. Since the debt is $750k at a 4.5% rate interest only my annual debt service is $33.75k. My NOI of $60k - $33.75k = $26.25k then divided by the downpayment of $250k is a 10.5 Cash on cash return.

$250k * 0.06 = $15k and since I pay investors a 6% preferred return do I pay them first $15k then distribute the remainder $11.25k in a 70/30 ratio with an additional $7.875k going to investors and $3.375 going to me. And I repeat each year.

Your probably thinking why pay management fees to Blue Estate LLC instead of yourself. The reason why is because I want to start a big real estate private equity firm in the future. By setting it up like this I could say my firm has millions of dollars of AUM which could help with showing a track record and crowdfunding for future deals.

Could someone please explain legal fees, registering with the SEC, setting up a PPM etc.

Do you like my structure? Any suggestions?

[Alina Trigub]

@Bellman Tumasang

As @Greg Dickerson mentioned, educating yourself further is critical in this business. So start with "it's a whole new business" and "best ever syndication" books, Listen to podcasts, such as "syndication show" by @Whitney Sewell.

Also, if your interest is apartment complexes then study up on MFH investing. The two of David Lindahl books are a great start. 

Speaking with securities attorneys is essential as well. Many of them attend and present at REI conferences all over the country. Easy to find on BP or Google it. Which leads me to my last important point: networking is the key in this business!

Best of luck!