Forming an alliance to buy an apartment complex

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Forming an alliance to buy an apartment complex

Angela Jossy
Tacoma, WA · Member since 2016 · 41 posts · 16 votes

I have been trying to figure out how to get started and do my first deal. Househacking was my main focus but in the process of investigating that something happened. A friend of mine flipped a house her parents had been renting to a family friend and now she sold it and has money to reinvest. She was thinking of doing another flip but I showed her this triplex in her neighborhood and she put in an offer to buy and hold it but the seller took it off the market. Now she's got the itch like me but unlike me she has a lot of cash. 

I also have a relative that is going to sell her house and move in with another relative so she will soon have money she could invest. Would it be a good idea to pitch the idea to them that we all go in together and buy an apartment complex? How would the proceeds be divided? Should everyone buy and hold together or should I do a BRRR strategy and buy them out when I refinance? Have any of you ever tried this kind of deal before? Is it too complicated for a newbie investor? (I am an experienced property manager of a 49 unit tax credit building).

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  • Matthew Charron
    Rental Property Investor · Palm Bay, FL · Member since 2017 · 43 posts · 13 votes
    9y

    I am a newbie myself but I feel like butting in for the sake of conversation and trying to exercise some of what I have learned. The first thing if you want to have these partners would be to make sure all your interests are aligned. If one wants to flip, one want to buy and hold, and one wants to just be a private lender then you could run into some issues. If you plan on using traditional financing to purchase the property, for example a bank loan closing in the typical 45-60 days I hear, as opposed to paying cash and closing quickly then you could put yourself in the position of paying retail prices and facing lots of competition. If you do manage to land the property with traditional financing, how are you splitting up the costs of the down payment and closing costs and etc? Do you have any money yourself to split three ways or are you planning on using your associates as equity partners? Not sure how long it typically takes to refinance a conventional loan to get your money back so if its a couple years will they be satisfied putting up the cash up front and only having the 3 way split cash flow to slowly pay them back until you can refinance? If paid for in full with cash I believe you cut down the seasoning period drastically allowing quicker payback and earning cash flow immediately being able to refinance sooner making it a bit better deal to split with partners cause now you have the capital to buy another. Once a property is being considered and brought under contract you would definitely want to speak with an attorney and a tax professional to make sure you have everyone's interests covered in full and an entity set up and taxed properly if it best suits the situation. Have to make sure you're protecting everyone's personal assets if something goes wrong. As for the split you could do it evenly 3 ways if you are putting together the deal and managing the property and they are just financing. If you feel you want to do a 40/40/20 to just get started and interest them more in the deal maybe that is a way to go. I am sure some more experienced people would have a better answer for you but as I said, I just wanted to chime in to get myself more involved and share what I've learned and see if I have any good ideas. Good luck!

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