Originally posted by @Michael Ealy:
Originally posted by @August Armbruster:
My siblings started to invest in multifamily apartments in 2016. We currently have 3 properties (93) doors in our portfolio. We own and operate all properties. We have financed every deal with conventional financing (20-25% dp with a bank loan). We used our own capital as the dp for the three buys. We are purchasing a new property and we want to start using outside money for capital. I would like to approach my inner circle of friends and family with a lucrative deal for both parties but I'm looking for feedback on how some of you structure deals like this? Thanks!
August,
Congrats on acquiring 93 units in less than 3 years.
I've acquired over 1,000 units since 2006...so I have a decade headstart but I am sure with private money, you will ramp up pretty soon :)
To answer your question, there are many ways to structure a deal.
- For smaller deals (less than 50 units or less than $1M cash needed), you can structure it as DEBT. The private lenders can get paid 8-10% interest p.a. and you give them back their principal once you refinance or when you sell whichever comes first.
- For bigger deals, I like the preferred shares model. For example, let's say you need $1M in capital and let's say, you use it to fund a deal with a 12% yield. Your investors get preferred share - I give between 5-10% interest and between 30-70% equity.
Let's assume you give them 7% and 50% equity.
- So, $1M x 7% = $70,000; remaining is $50,000 profit. They get an extra $25,000, and you get $25,000.
- My investors love the preferred share route too because they can see that I need to make the project profitable enough so that I will get my profit share.
Makes sense?
Thanks Michael, I would be extremely happy if we are at 1,000+ units in 7 years! Thank you for the information and examples.
I'm sure private investors prefer to receive interest p.a. for as long as we own the property however, in your experience are they ok with a term? Example 5-10 years. 5 years being the earliest we can pay off the original amount invested plus interest p.a. and 10 is the latest?
