Putting together a syndication - Fair to investors and sponsor

[Luc Boiron]

Hi all,

I have been renting SFH, houses by the room, and duplexes part time since I started in 2007. Now, instead of practicing law, I decided to go into real estate full time.

I have been flipping, and have been making good returns so far on my flips. I have investors who will be investing in my future flips, with a simply split of 50% of profits to the investor who puts up the equity.

One of my investors and best friends has told me he has a group of friends who would be interested in investing with me, but are looking for long term rentals. My dilemma now is what a fair split is.

The strategy would be to buy multi family. In Toronto, prices are crazy and cash flow is very limited. Outside the city, within 1.5 hours would be where I would look. Cap rates are usually 5-7% in these areas. The plan would be to find properties that are either at under market rents and can be improved to increase rents, or properties that are in good shape and running well, where the seller is willing to take a partial 2nd VTB mortgage to allow us to buy a larger property with less capital.

I would have a 3rd party do the actual property management. The investors would be silent partners, completely hands-off. I would put about 10% of the equity in so investors can see I have skin in the game. I imagine the total equity in this deal might be $200-$400,000.

My suggestion is to not take an acquisition fee or a management fee, or any fees. All cash flow from the property would go to investors first, until they have fully received their capital back. After that, I am thinking of a split of 65% to the investors, and 35% to the sponsor (me).

What do you think of the set up and the split? It is still early with these investors, but I want to get started as it is only a matter of time before I start doing syndicated deals.

Any advice or suggestions BP?