How should I structure my deal with a hands-off equity investor?

[Marcos Carbi]

Hey guys, I found an excellent off-market deal in an area I'm very experienced with. I made an extensive pro forma and the numbers work out really well, it's an incredible opportunity. Unfortunately, I don't have the capital for it so I've been looking for an investor to go in on it with me (and I think I found him/her). How should I structure the deal in terms of my share: equity, acquisition fee, refi fee, disposition fee, asset management fee, or anything else? 

Pro-forma numbers with 6% acquisition fee, 0.5% yearly asset management fee, and 6% disposition fee:

   $5.7M - 10 year hold

Cash Needed: $2.1M

Int Rate: 8.25% | Re-fi in 3 years at 5%

Profit: $4.08M

ROI: 191%

IRR: 15.54%

Stabilized CoC: 13%

* Pro-froma is fairly conservative *

Note: We'd be pulling out about 50% of initial equity/investment at the refi because of the instant equity from the low purchase price and the forced appreciation. 

Not only did it take me long to find and analyze, but the investor would be fully hands off and I'd be doing all the work from start to finish (LLC filings, legal paperwork, rehabs, managing the PM and asset itself, etc.)

I have no equity in my pro-forma, but I think I want some because it is such an amazing deal and I want to own part of it. 

How would you structure it?

[Charles Carillo]

@Marcos Carbi

Since your investor(s) are completely passive, you are creating a security and need to speak to an SEC attorney. Normally, we will do a preferred return of 6%-8% in our deals with a 70/30 or 80/20 split above that, a 2% acquisition fee, and an asset management fee of 2% of gross income. We do not charge a refinance fee or disposition fee.

Lastly, if you are planning on working with just 1 investor or a couple of larger (whale) investors, I have not had luck with this in my years of raising money and if we are partnered with a group that says they have a "whale" investor, I disregard it since they always (for us) fall through or they change their mind near closing, and what to negotiate the terms.

The lender will typically want large passive investors to sign on the debt, and have a more active role in the project.