How do you structure deals with investors?

Question

I recently saw a youtube video with Cody Davis talking about how he used investors to buy multi unit building

The math was like if he could raise the rents $83/mo per unit on a 6 unit building at a 6% cap rate it would add about $100,000 of equity.

He mentioned something like he needed 90k and the investor could double their money. That's kind of how he set it up. I may be wrong but I am assuming if he missed a payment the investor would be entitled to that $100k in new equity.

Now I am wondering how are you structuring the deal with the investors? does that new $100k in equity get a cash out refi and payoff the investors? Are the investors a 30% partner on that property forever?

What resources are out there with how to structure deals like that?

Brett Deas · Answer

The way my business model works is we always have an exit event for our investors which is normally the refi, great way to recoup full control and mitigate risk for the investors using the equity on the property.

Doug Smith · Answer

Our investment arm is odd in that we not only do real estate investment, but we also are a lender. We use funds for both activities I've actually found it easier to treat it as debt and pay them a fixed rate for a period of time (12-36 months depending upon the investor, length of time we have the money, and the amount we're getting) and do a UCC-1 on the company holding the assets. It's a very, very different structure that I'm sure many will poo-poo on here, but it's worked well for us and the investors. Many are doing deal by deal, but we do a lot of deals, so that became cumbersome for us. I've found that provides a fair return while mitigating downside risk for them. I hope that helps.