Help Structuring a Deal

[Dylan Tettemer]

Hey BP,

I have just found a quadplex last night and I wanted to see what you all thought and if you had any insight into what I am trying to do. I am looking to get a partner on the place for just the down payment of the property, split the profits 50/50 and I will manage the place myself and eventually I will actually move into one of the places. I am not sure if I want to do the deal with the partner long term or if I want to figure out a way to pay him back quickly. What do you guys think of the numbers and how I am trying to structure the deal?

[James C.]

Dylan,

This is a tough go... you are asking an investor to pony up 100K and get back 500/mo or 6,000 per year, or 6%.  Plus 50% of any increase in the price, if there is any.

Most HML look at 12% with less risk (70-75% LTV vs. your 100%). What is your skin in the game if you default? You don't mention if you have a track record or not, but if you don't this makes it more difficult. I also think vacancy at 5% is low, as is repairs at 5%. Your interest rate at 4% is a bit low (I just got an OO at 4.125, investor deals are 4.5+ish) If you run vacany and repairs to 10%, an increase the rate, you are looking at about $600 profit, or $300 for your investor, or 3.6% which won't fly.

Overall, the numbers look marginal, and if you take a unit, you will be paying for that unit, probably around 1500-1700 to make it break even.

As an appreciation play, maybe, but you don't specify where the property is, so it's hard to judge.

Not saying no, just it looks tough to put together.

Just my $0.02

Good luck,

Jim