Raising Money for a 36 unit

[Alex Jamael]

Currently have 8 units over two buildings and looking at a bigger acquisition. I found a great 36 unit complex spread over 3 buildings, great shape. Ideal price to acquire would be 1.7m, net profit of $156,000 per year. I am looking at raising money for the 20% down payment, I have been thinking of either doing a 8-10% roi for investors OR offering an equity Stake in the property. 

Questions:
If you do an equity stake; does it get complicated with having separate owners , having to draft legal docs etc? 

The 8-10% Investment option have many people had good luck with this and particularly anyone raising 100% of the money? 20% down payment private lending and 80% bank ?

sorry it’s a long one appreciate anyone’s opinion!

[Chris Levarek]

@Alex Jamael I'll just highlight a few points, some already discussed. Its a good idea to work backwards:

Step 1 ) The raise on a syndication or multifamily acquisition will typically be around 35% of the purchase price as a "rule of thumb", each deal will vary of course. This is a safe estimation in most case so for this property, 35% of 1.7 = 595k. 595k accounts for down payment, closing costs, fees and renovations roughly. 

Step 2 ) Identify existing connections, Network for new connections and Build the number of connections to meet that kind of raise. Depending on what you are able to network or already have will determine your strategy.

Step 3 ) With the individuals or investors estimated to take down a 595k raise in your network, consult an attorney specializing in Joint-Venture or a Securities Attorney. Depending on your network, you will receive recommendations on what would best fit the number of investors. In general, 3-5 or under could be a simple Joint-Venture or Tenant-In-Common arrangement. Over that amount typically will require syndicating into a REG D 506b or 506c or even a 504. 

Not an attorney here, but I would add that it is possible to do Joint-Ventures with a good number of people however, there has to be some rules met such as weekly/monthly meetings, each person plays an active role, etc. There in lies the rub, as they say, as this can be challenging the more investors involved.

Other items of Note:

• Talk with a commercial lender, especially with the current state of affairs, and submit a personal financial statement to find out if 20% down is actual. Depending on your finances, experience and the deal, 25-30% might be required. Lenders are kind of in a holding pattern right now however each case could be different.
• Creating the legal documentation is not difficult if you partner with the correct legal team. It can be costly however, 12k-15k for typical syndication legal documentation.
• 8-10% can be very attractive especially with a more "recession-resistant" asset such as real estate. With the current stock market volatility, the argument can be made easier in any case. Many multifamily syndication will offer average rate of returns of anywhere from 10-20% at present. Depends on the deal, depends on the structure, depends on the operator, depends on the investors. A 8-10% is good return for stable investment with depreciation benefits and backed by collateral that is the property.

Hope that helps! If any of the above terms are confusing or you want to discuss. Reach out and I'll help if possible.