Which Real Estate Investment Structure you prefer?

[Christopher Garcia]

I'm in the process of setting up an investment fund and I'm considering two different deal structures to offer to potential investors. I'd love to get your feedback on which option you think is more attractive and why.

Option 1: Equity Partnership

- Target Properties: Single-family homes, multifamily properties, and land for development in prime locations.

- Investment Term: 5 years - 10 years

- Equity Split: Investor 80% / Sponsor 20%.

- Preferred Return: 8% annually to the investor.

- Profit Sharing: After the preferred return, profits are split 70% to the investor and 30% to the sponsor.

- Management Fees: 2% of gross rental income annually.

- Acquisition Fee: 2% of the purchase price.

- Disposition Fee: 1% of the sale price.

Option 2: Debt Financing with Equity Upside

- Target Properties: Single-family homes, multifamily properties, and land for development in prime locations.

- Interest Rate: 6% interest only for a term of 5 to 10 years

- Prepayment Penalty: 2% if the loan is paid within the first 3 years

- Equity Upside: Investor receives 30% equity of the appreciation

Which option do you think is more attractive and why?

I'm looking forward to hearing your thoughts and experiences. Thanks in advance for your input!