Selling equity shares of cashflow investment properties.

[Ben Bakhshi]

I am trying to raise funds and was suggested to offer equity in my properties at a 10 cap rate. So, if a property makes $8,000 NOI a year, at a 10 CAP its worth $80,000. Let's say I paid $50,000 or the property 3 months ago.
Now I want to offer either 50% equity to an investor at the healthy 10 cap rate.
If I sell 50% at $40,000, I have 50% equity at only $10k invested. Sounds great.
But now, according to the market, my investor has negative equity. If we were to sell today he would get back less than he put in.

I am missing something to make this a good deal, but what is it? On the one hand I am offering a great cashflow investment, and on the other han negative equity until the home value rises 40%. How are deals like these structured?

Hope you can help.

[David Beard]

Ben Bakhshi, if you have a portfolio of properties, you need to simply sell some in which you can harvest a solid gain (buy at 15 cap, sell at 10 cap, for example), and keep others. Don't over complicate it. RE investors do this all the time, buy some, keep some, plow some of the gains into building a passive portfolio.

You want to continually revalue your holdings, and determine the opportunity cost of keeping a given property vs selling and buying something else (factoring in all the frictional costs, taxes, and time of buying and selling properties).

Refinancing using higher appraisals and extracting your cash is nice as well, if you have good credit/income and willing local banks.