How to Structure a Quadriplex Deal in Great Area of Town...Good Exit Strategies!

[Josh Gaddy]

Hello everyone, hope everyone is investing happily and profitably! I have found a circa 1921 quadreplex in one of the best areas of Raleigh, NC. Its in an area which is extremely desirable for renters and buyers. They are asking $570,000 for the building. All 4 units are currently leased until early next year between Feb and April. The rental income is $3270/month. Our general idea on this deal would be to buy the quad, rent it for a couple of years until the market turns, and then renovate the units and sell them as condos. We have been approved for a loan with 25% down and almost have the down payment together. We might be able to get 20% downpayment, but we need the deal to at least break even monthly for a couple of years, so we have to put a certian amount down. The taxes, insurance and utilities will be roughly $360/month.

The comparables are good: we can raise the rents about $200/unit/month or $800/month, maybe more. The ARVs for condos in the area are roughly $230k for extensively renovated condos (which we would evantually do.)

What draws me to the deal is its flexibility. For one, I am a current renter, and would gladly move in if we have trouble renting a unit. I most likely will anyway, because we might be able to get a better interest rate for owner occupied. I know that I would get lots of interest from friends wanting to live there. My partners will probably want to move in as well, as they are also renters. So, I am not worried about keeping the units occupied.

Since we wont be losing money on a monthly basis (hopefully), I am not too worried about how long it takes the market to rebound bc I will be happily living there and will have willing tenants. My cashflow standards are also significantly reduced due to the fact that it could be my personal residence, so as long as we arent losing money monthly, Im happy. Of course it would be better to be making a couple of hundred a month!

The floorplan is extremely good for a renovation, in that there is lots of options. It is in a historic district (scary) but the outside is already gorgeous, so that shouldnt be a problem. There is probably about $25K of work that could be done to the building but is not necessary by any means. The minor structural issues has been recently fixed. The kitchens and baths are recently renovated, appliances all work well. Plumbing is in good condition, electrical was good according to inspector. Roof is ok.

The questions I have revolve around how to structure the deal. How do we finance the deal creatively so that we can own it in an LLC? I found a way, but we would have to sign personal garauntees, which helps with the issues related to having 3 partners in a deal, but doesnt limit our liablity, which is my main objective. What would be the best structure to protect all of the partners (from Uncle Sam, our lender, and each other!!) and still get a reasonable interest rate and down payment?

We have about 100K of the downpayment, maybe all of it but not for sure yet. Any ideas on a way to get cash without bringing in a fourth investor?

Does anyone see pitfalls?

Any advice would be appreciated!