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!

[Luke Carl]

Sounds like you’re looking to syndicate.

[John Underwood]

I would rather go slow and steady and not have any equity partners than going too fast.

[John Underwood]

Ask the sellers if they would take back a 2nd mortgage for the 107k or any large chunk of it. 

[Paul Sandhu]

I would find more inexpensive properties.  In my market I can buy a 3BR with CH/A for less than your remodel costs.

[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.

[Kevin Boyd]

If they want equity give it to them with a buyout provision.

[Joseph Bafia]

I’ve done some partnership deals and have structured various ways.  Of the $107k , how much would you be putting in of yours or are you looking for all $107k with none of your money.  (Not that it’s a bad thing, just curious).  Best way is to approach a few investors (or even BP members ) and ask what they would want in terms of return or equity for a deal if they were investing.  Happy to pitch you through a PM as to what I’d want once I had more details.  
then you have a starting point.

[Alex S.]

@John Underwood I attempted to get the seller to finance 20% of the deal as a 2nd mortgage. My lender (a local credit union) shot it down. They said Fannie/Freddie rules require me to personally bring 25% to the table if they are going to give a 75% LTV mortgage on an investment property. I guess I need a portfolio lender to pull that off?

@Lien Vuong Thanks for the thoughts!

@Joseph Bafia As it stands now, I'm putting in all of my own cash for the $107K...though I'm talking with some friends about a 6-7% APR loan for ~75K of it. Obviously, doing it all myself will only be long-term sustainable if I can BRRRR out the cash (this brings up a question that I'll ask in a new post). I'm all ears to hear the terms you look to fund in a PM.