Structuring private capital deals on STRs

[Alex S.]

Hosts,

I am remodeling my 6th STR and am finally realizing that I can't grow fast enough without some private capital. I still have a full-time job and I'm in a profession with a lot of high W-2 earners in my network that would be great cash providers.

I am struggling with how to structure a private capital deal with a potential cash provider.  What are some structures that have worked for you?

Obviously, I'd like for them to just give me all debt financing at a low rate, but these are savvy people and if they believe in me...they want equity.

Just one example, though open to any type of STR deal:

I am under contract on a 4-plex.  $376K purchase price.  75% bank financing @ 3.69%.  $10,000 remodel costs.  2 units are LTRs at $1250/mo each.  2 units are vacant and staying that way so I can furnish them for STRs.

With closing costs and everything, I have to put up $107K in cash.  I'd like to get private capital to help me with that.  How would you do it?

Thanks!

[Lien Vuong]

You can have him as a limited partner with designated and specified returns and equity portion such as 20% so he would earn 20% net profit from the entire pie with quarterly distributions and resale profits whenever that happens. If you're self managing, I would charge myself the management fee so it's all clear and itemized for his auditing. You can have him on the mortgage or put it into an LLC so you dont have to carry that debt on your balance sheet.