Investor joining LLC to provide down payment on large multi-family

[Account Closed]

So my dad and I co-own an LLC that we use to buy property. We don't have a ton of money to put down on a large multifamily but I have been thinking about this idea.

If we buy a $2M property at a 13% cap rate, which luckily is a possibility in our area, we would need $500k to put down. Say we bring in a 3rd partner to the LLC which is there to provide capital. We would offer him an 8% return on his money for 5 years.

Purchase Price: $2M
Cap Rate: 13%
NOI: $260,000

Bank Loan: $1,500,000
Annual Loan Amount: $108,000 (30-year @ 6% APR)

NOI - Annual Loan Amount = $152,000

Now time to repay the investor that provided the down payment money: He would bring $500k to the table and we would set up a loan to give him an 8% return for 5 years. This comes out to $10,140 a month ($121,680 a year)

$152,000 - $121,680 = $30,320

This would leave us with only $30,320 a year which would mostly be spent on extra maintenance.

We have time to spend to manage the property but we also work full time and this would be extra income so we wouldn’t mind making next to nothing off it for 5 years if after we own a $2M that brings us $152k a year. The five year wait would totally seem worth it once the investor is paid off. If bringing him in is the only way we could obtain the building it doesn’t seem so bad.

Those of you in California or something may not think this will work because of the high cap rate but 13% cap rates really do exist in our area, they are just a little tricky to find. They obviously aren’t listed so I would spend a lot of time digging one up.

I know on conventional residential loans the bank will give you a hard time for having another party provide the down payment but on a commercial deal where all three parties are members of the LLC that is obtaining the property I've hear it wouldn't be a problem.

Is this something that could work or am I missing something?

[Oscar Perez]

I may be wrong as I've never structured these deals, but lets get the thread going. It doesn't seem your bringing on a partner but rather an investor. A partner would have a stake in the equity of the deal. What your describing seems to be finding an investor to loan the LLC 500K @ 8% for 5 years. They would have second position on the deal. The bank ponying up the 1.5MM would have 1st position. If you can find investors to do a loan like this for 8%, jump on it. Most hard money loans I'm seeing are 12%.
If you can structure this deal, then you have in essence did an zero down deal.