Funding for Start Up - Can you include Payroll

[Rusty Knowles]

When starting up a new company and seeking funding, are you able to or is it taboo rather, to ask for payroll and/or operating fees during that start up?

My scenario would be a start up property management company that would be looking for funding of a multi-family unit. One problem I am running into is I cannot quit my job for very long before needing to begin making money, so is it possible to get an investment that included my management company start up funds which included payroll? Would it be separate investments if so, 1 for my company and 1 for the deal?

[Jon Holdman]

People can and do start companies, raise money, and then use some of that money on salaries.  Quite common for high tech startups where the major expense is often payroll.

But I don't think you really mean you want to start a property management company.  You mean you want to create a syndication to acquire an apartment building.   One thing to realize is that the people who put money into such a deal are the owners.  If you're not putting money in, you're going to get, at best, a tiny sliver of the equity.  If investors put in 100% of the cash they are going to expect to get very close to 100% of the ownership.  Usually the promoters of such syndicates invest some of their own cash into the deal so they get a slice of the equity.  Its a way for the promoter to do a bigger deal than they could do on their own.

Now, if your role is to act as the manager of the business you could collect a management fee.  If you're also doing the actual property management you could also collect the property manager's fees.  The amount of those fees depends on the size of the business.  I just looked at the latest report from a deal I'm in.  The management fees are about 5% of gross revenues and the wages and taxes for our full time, on-site manager run about 14% of gross revenues.