All Forum Posts by: Bryan Hartlen

Hi all. We’re putting together an opportunity on a mid-sized MF apartment. We’d like to structure this as a GP/LP opportunity. This will not be the first MF deal we’ve done, but it would be the first one we’ve structured this way and new for our private investors. I’m looking for your thoughts and opinions on what you’d find compelling as an offering in terms of the following:

- minimum IRR

- average CoC return

- minimum preferred return

- preference for share or operating cashflow compared to equity share (how much cashflow split, if any, would you forego for a larger share of equity split? Or visa-versa?).

- would a share of the depreciation expense be interesting?

Thank you for your thoughts and opinions.

@Scott Moore we tried this recently but we assumed that the assumed loan would stay in first position and that we wouldn’t find another lender willing to be in second position (or wouldn’t be allowed by the first position lender)… so the balance would have to be covered by our members capital raise and would be paid out according to those terms. When we entered the assumable loan, we kept the current principal, rate and payment amount by tweaking the term, and set the down payment to 0, so the cash flow numbers would work.

@Brian Lucier I haven’t built a syndication but my understanding is that….

preferred returns are like simple interest. In your example you’d pay the investors $8k per year. Distributions can be monthly, quarterly (or however frequently you specify). As you noted it’s paid first from any cashflow (after expenses, after debt service) and before any cashflow distributions that are offer shard between LP and GPs.

@Matt Waggoner I’d recommend consulting a lawyer but 

- you should be able to do this. Our property management company signs leases on our company’s behalf all the time. I don’t know if this is because they are Legal registered agents (hence check with a lawyer)

- would also suggest you make sure you are aware of the risks you are accepting when/if you want our properties that are in your personal name and not an LLC.(check with a lawyer if you're not sure of the risks).

- if you can swing it, you may want to consider keeping tenants on MTM for a couple months until you’re sure you want them long term. 

Good luck!

@Kevin Morgan I'm no expert so treat this comment accordingly… but I think you answered the question yourself. You're selling a business so use the STR/MTR cash flow. As long as you include the unique capex costs for the furnishings in the pro forma I would think the model should hold. Prior to this year's market adjustments, we had seen some lenders loan on the NOI of STR income streams (which put the property's value well above traditional LTR comps). So I think the logic holds.

@John B. I think you’ll find that the answer to the question is that it depends. It depends on
- how good your local team is (or how good you are at building a team)
- how organized you are - when you’re not there to see things you need to be more thorough in the questions and processes you use to ensure you are getting the property, rehab and tenants that you expect
- how well you are buying your properties - there is a greater opportunity for mistakes so you need more cushion
- your personality: do you need to know every micro level aspect of the project or are you comfortable managing it at a macro level
We've bought 10 value-add SFR properties without every seeing them. We've kept 5 and flipped 4. Our first few we're more bumpy than our last few as our processes have improved. That said, you were asking about purchasing 3 - 10 units…. We're currently looking to move into small MF space (10 - 40 units) and our plan is that we would physically visit the property during due diligence to get everything set up and to increase the odds that we quickly identify more of the differences between SF and MF investments.

That is the investor's issue. From your end it's just money. You don't care whether it's IRA or after tax money. You just make sure that you pay returns to the entity you received the funds from.