Creative finance/partnership advice

[Jeff Ballus]

Hello,

I've got an opportunity on an amazing off market property that my wife and I would love to move into but the property is 2x what I am able to afford. I have some investors that see the potential as well and would be willing to partner with me to secure the property. The property is old and needs significant updating but the lot is big enough to subdivide and potentially build another home and/or an ADU. The area is highly desirable with multi-million dollar homes surrounding. My question is, how do I configure a deal with partners on something like this. The goal would be for my family to live on the property and add value over time (via updating, subdividing, additional dwellings) but I'm struggling with how to configure a deal with investment partners on a deal like this if their money is tied up until there is a refi or we sell the property. Any ideas on structuring a deal that is a win win for all parties would be greatly appreciated!

Thank you,

Jeff

[Shafi Noss]

It sounds like the issue is that you don't know when you'll finish the repairs, so your partners don't know when they'll get their money back. Is that right?

I work with investors on development projects in Texas. We preempt this concern by presenting a clear plan for the work ahead of time, and it's usually a range. Then the investors come in only if they're willing to accept not just the average time, but also the size of the timeline range. 

You can also compensate your investors by time instead of by equity split, by giving them a percent return per year. That way if you can't perform, they still get paid to some extent. 

For example, you could show them a specific plan for the improvements, and estimate it will take 12-18 months. If the exit takes more than 18 months then you'll offer them 15% a year for overtime, paid out of the eventual sale. You can tweak this around any number of ways. 

Fundamentals here are to have a really clear plan, and a compensation structure that aligns your interests with the investors interests.