Partnership - Apartment Complex

[Brianne Dylla]

Hello - 

Mu husband and I have a friend who has offered us an opportunity to buy into an apartment complex deal. This project would be a new build. Our friend has several multi-family and other commercial real estate projects. My husband and I own 3 single family rentals and are looking for a way to jump into the commercial side. What questions should we be prepared with when discussing the apartment deal with our friend? 

[Erik W.]

@Brianne Dylla, hi and welcome to BP!

There are a lot of questions, so I'm only going to talk about some of what I believe are the more critical ones:

1) How much experinence does you friend have in apartments?  You did say he has "multifamily units and other commercial property", but what does that mean?  Multi-family can be a duplex.  Commercial can be a small store front.  That is a whole different ball of wax than building a 200+ unit apartment complex from the ground up.

2) How big is the complex?  Again, as in #1, the size and scope of this project may be a 10 unit or 200 unit complex, and while those are both "apartments" they are two totally different worlds in terms of financing, lead times, marketing, managing, etc.

3) What other investors besides you and your friend are involved in this deal, if any? Will is be a syndication, a limited partnership, a multi-member LLC, etc?

4) Are you only investing money or will you be performing any duties like design, contracting, managing, etc?

5) Is there a clear scope of works, or is this idea just being kicked around?  In other words, if you say, "Yes", how soon are the backhoes breaking ground?

6) What are your experience levels with construction?  Ground up building is a whole different animal vs. rehabbing existing structures.

7) How is the property and constructions costs being financed: cash only, construction loan, conventional bank financing, multiple partners?

8) Have you got a partnership agreement in place that covers the 6 D's: Drugs, Dementia, Disinterest, Divorce, Dissolution and Death?

9) What is the time frame of the project?  6 months, 18 months, etc.  How will the carrying costs of any financing be handled?  Who is managing the timelines?  What happens if timelines aren't met?

10) What are your exit strategies from start to finish: If things don't go according to plan, how do you get out?  If things do go according to plan, when do you get out?  This is probably the most important thing.