All Forum Posts by: Enrique Huerta

Exactly. It is uncommon and highly unlikely because most investor's won't do it. It is NOT a competitive return structure. And as others have mentioned, it's not the equity ownership that changes but the distribution of cash flows and the profit split at sale/refinance. Sorry if that wasn't clear.

At the end of the day, everything is negotiable. If you find smaller investors that would be willing to do that, then technically you can. However, as others have mentioned, there are so many options today given the plethora of active sponsors, funds, and now crowdfunding sites that it's not a competitive offering. Also, you don't want to take advantage of anyone. As someone said, you're a partner with the investors and you should aim to be fair and always act as a fiduciary.

As for investors rolling capital into the next deal, they often elect to do that but they wouldn't be diluted on the original investment. They'd get their capital back, their return on their capital, and their share of the profits. 

Best of luck to you.

@Jacob Rowland

Target smaller private firms that are entrepreneurial and active.

Are you planning on staying in NC? My firm offers paid internships in the Multifamily space. Not to steal Elon’s thunder, but we just look for sharp, committed people with common sense and a burning desire to build a career in real estate private equity.

We’re in Los Angeles.

Sorry, I meant 30% to the GP and 70% to the LP after a 15% IRR.

How it works is via negotiations of the partnership agreement. It's typically based on achieving a specific IRR, EM, or COC hurdle.

Pros/Cons: it’s full of Pros

Tips: Do it!

@Jordan Santiago

This is very common practice. It’s called a promote/carried interest and is part of the investor waterfall. It happens at sale or at refinance if you’re able to pull out enough capital to exceed the negotiated waterfall.

Your specific example is not common and highly unlikely, but the general concept is doable.

I typically see 8% pref paid pari-passu (90% LP/10% GP), return of Capital pari-passu, then an 80% LP and 20% GP from an 8% to 15% or so and at that point there would be a “promote” and the GP could be at 30% and the LP would be at 30%

These numbers and hurdles are all negotiable. The above is just one example I’ve commonly seen.

Hope that helps. Let me know if you have any specific questions.

What do you mean by Annual Returns? Is that the NOI or the Net CF?

You should ask:

For a copy of:

• -2 Years of Operating Statements
• -Current Rent Roll

You should look for the Property Tax bills. You should conduct a rental survey to ensure the rents are not too high or too low (Yes, too high can be a problem). 

Then, you should ask about the major mechanical systems (roof, plumbing, electrical, HVAC, foundation, etc.), you should research the market and neighborhood,ask for sale comps, and then you need to underwrite the deal.

I'm happy to help you with the analysis but I would need more information than what you provided. Get a copy of the rent roll and the financial statement. At a bare minimum, you need to know how many 1 beds and how many 2 beds there are. You also need a copy of the tax bill and to know how much laundry income they collect. We can create a "proforma" on the rest of the figures based on that data alone.

Seems fine. List price is just the seller's desire. The real value is what you guys agree to a sale at.

Best of luck!

I'm glad you found that data helpful. If you have any questions during your homework period, feel free to connect and reach out. I'm extremely passionate about multifamily investments and have been in real estate since 2014. I'm happy to help point you in the right direction.

My question is what are some RE investment opportunities that will 1) provide experience that will be beneficial towards my goal of owning an apartment complex,

Investing in passive syndications if you are an accredited investor or investing in crowdfunding platforms that cater to retail investors. By reviewing the deals from these sources, you can start to see how various sponsors underwrite and acquire investment properties across the country. You can build a diversified portfolio by acquiring minimum investment interests with different sponsors and geographies.

and 2) keep my investment liquid enough to cash out when the time comes for the big purchase.

This is challenging. Real estate is not a liquid investment. Even with the crowdfunding sites, there's not a major secondary market so your capital is tied up for the life of the project (3-5+ year hold period). It's just the nature of the beast. 

One recommendation that someone else posted is to start smaller. Rather than wait a decade to save $1M, buy a smaller apartment building now (2-4 units is residential and 5-20 would be commercial). In Montana, I imagine you can buy some decent real estate with less capital than $1M in savings. You can also look for deals and partner with someone to do a JV where you will learn a lot from that individual and get some profits but not be responsible for the entire capital investment or financing portion of the deal.

The possibilities are endless and people have done more with less. With your income and motivation, you can definitely be in a real estate investment by the end of this year and not this decade. Let me know if you have any specific questions.

@Scott Jenkins

Your best resource will always be an attorney that is familiar with these matters. I have some referrals if you’d like or you can find some here on BP. Great folks to meet and know. The legal fees are worth it to ensure you’re in compliance!

Hi @Ameya Vasani, the California Association of Realtors publishes a standard rental lease agreement. So does the California Apartment Association and perhaps the local chapters of both associations. I'd look into those options online. They are pretty standard leases and useful for most individual owners. The fee is minimal and you get a whole library of forms to use. Let me know if you have any questions.