please help on question about equity
Hello All, I am a complete real estate/ business newbie and I have something I am hoping someone will explain to me as if I am a 5 year old.
I want to build a residential assisted living home, which will include needing to take out a large loan for the real estate, FF&E, operations, hiring, working capital etc. Let's say for simplicity's sake that I think the project will cost $1 million. I plan to try to obtain 85-90% of that from an SBA 7a loan.
I need help with the down payment. I have found an equity partner/ mentor who is interested in contributing $50k in exchange for 15% equity in both the real estate and operations companies. I am told the real estate will likely appraise for twice the value once built, possibly more once licensed for residents. Good cash flow and profit potential.
Forgive me, but what will I end up paying in this scenario? 15% equity in both companies means what exactly? Is this 15% of profits each quarter? Or 15% of the sale of the company when that time comes? Or both? Or something else entirely?
Thank you so much in advance!