How to Fund a Multi-Family Unit that requires complete Rehab

[Joyce D Raphael]

I have an Opportunity to purchase 5 unit mult-family property in need of substantial rehab. Currently the property is empty. Comps show ARV of the 5-unit is $607,000. Monthly Revenue potential is $5200/mo. The purchase price is $350K and the rehab is estimated at $150K.

Seeking funding scenarios for up to four partners.  

What are advantages/disadvantages of partners funding the purchase price of $350K with cash, and financing the rehab $150K?

What are Scenarios for payoff and return on investment for partners?  

What is an attractive, reasonable deal for partners, i.e. rate of return on investment; Length of time for payout of capital investment?

I am Interested in what has worked for people who have put together these private deals or what would be incentive for a passive investor?

 I've not put together a deal involving partners before and want to know creative solutions from this active and experienced audience.

THANK YOU!!!

[Charles Carillo]

@Joyce D Raphael

First, the ARV seems pretty high for a property that is supposed to bring in $5,200 per month gross. That is like a 5.14% Cap Rate (assuming 50% expenses). The 1 month LIBOR is currently 3.57%. In other words, if someone bought this from you for $607k; they will most likely be paying the bank to own the property.

Next, this is a HEAVY value-add project. I purchased a vacant 5-unit in 2009 that was completely vacant and I went over my budget. I would make sure to triple check your numbers and make sure you have a sizeable buffer.

Lastly, you mentioned passive investors. To legally have passive investors in a deal, you need to create a syndication which would be too expensive for this deal to make sense. I would suggest setting up a JV; BUT, make sure that everyone is active (has an active role) or you are breaking SEC rules. 4 JV partners is a lot; maybe try to find just 1 or 2 (max) others to partner with.

*Not trying to be negative. Just explaining what my experiences have been with projects like this.