All Forum Posts by: Jason Blum

I recently bought a duplex, it's a rehab project. It was bought through the LLC I manage on behalf of my LP's. My economics as the GP are 2% aum fee/20% profit split/1% acquisition/disposition fee. I have a friend(experienced flipper), who wants to be involved in the project. His main value add is managing the construction/rehab piece. I need help dividing and conquering. Sourcing capital, finding and analyzing deals are my strengths (although I love architecture/design). For sweat equity and or investment he would like economics on the deal, but I am struggling to figure out a fair structure. He has capital, but we have already purchased the property. We plan on investing $130k on the rehab, financed by hard money. He could be the lender of that hard money.

Any ideas/suggestions on a good structure? 

Thanks Bhekizwe. I agree. 

You should be able to delete a post at any time any where on this site. That should be the policy of BP if they really care about their end users. Want to be Facebook? Play games. Otherwise make it simple. #biggerpockets 

I have been hunting for a flip in a market that has huge potential, the problem is that the inventory is poor. Houses are dated, all need work. The comp's are not attractive, not many homes have been properly updated yet. By updated, I don't mean a Dwell home, I mean something less but modern/nice. If I update the target house it will be the best house in the area even with a slim budget. I feel like I would be the first guinea to get the ball rolling. As an investor I'd rather see long term home owners making the updates to bolster the market, then jump in. But I am not seeing it yet. The median household income is $73k+. I recently sold a house in a market with $76k median @ $2M(20 miles south of the new target). But the 2 mile radius comp's had million dollar homes in it. 

Should I pass or take the leap and develop the market? Even for a measly 25% ROI. Maybe I am too early?

What do you mean by "real estate company"? 

Sometimes in auctions the "reserve" is not met, then the bank will attempt to put the property back on the market, using a real estate agent. 

The price they are asking is usually the market rate or what is at least owed to them. Finding out what that number is helps when you make an offer. 

Generally I find that if the party that holds the note is small- like a hard money lender, they want more. If it is a big bank, they will take considerably less. Either way, make an offer that you think is fair and see what happens. You might be surprised. 

I agree with a lot of what you and the author stated. I don't think the market can afford further rent increases. This trickles down to acquisition prices. Eventually. We may have reached the peak on acquisition prices.

The majority of employers mentioned don't pay salaries like Twitter or SFDC. If the majority of potential SF renters are not in tech, that's a problem. If they are, that is still a problem(potentially). Many big high flying tech companies have been pairing back and sub-leasing lately. At least from what I've seen, I don't have first hand data like you do. 

New York(which is often compared to the SF bay area) has Fortune 500 companies funding employment, holding HQ's there. Primarily these are employers who are in the Insurance/Banking/Securities/Investments/Media/Advertising businesses. These businesses are not going anywhere. 

SF seems more risky. Recent IPO's have tanked/underperformed. Unicorns are piggies IMHO.  

Oakland seems less risky, but the amount of development needed is huge-both on a macro and micro level. I look at a lot of multi-family deals in Oakland and it's better than SF, but not by much. Which is also worrisome. 

Making sure incentives are aligned is a big deal in any partnership being successful.

I look at a lot of real estate investment memorandums for multi-family or commercial deals, the structure I see most often is a General Partner(an LLC run by you) who manages a fund on behalf of LP's(a separate LLC funded by your investor(s)).

The LP's pay the GP 1.5-3% yearly assets under management fee- this is based on cash contributed and or yearly cash returned but not distributed, usually used to buy the next property. This fee is supposed to help with administration/operations of the GP for the fund. Tax returns, K-1's aren't free. 

I also see a 1% acquisition and 1% disposition fee for the GP. This should cover costs of hunting/selling of the deal. Then comes the profit sharing. The fund pays the General Partner based on a hurdle rate, usually 6-14%. The hurdle rate is the minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, the riskier the project, the higher the hurdle rate.

Then profit sharing kicks in. I generally see 80/20, 70/30, 60/40 splits depending on the deal structure. The higher share goes to the capital source(LP's). Profit sharing covers monthly cashflow economics and overall disposition profits. 

This same structure works for flipping houses too. You don't have to worry about cashflow economics for flips obviously. 

Everything depends on your goals with the property. Use it 30% of the time, rent it the rest, cover the yearly mortgage, or rent it all the time, generate cashflow/build equity/bet on appreciation. Lake Tahoe is a great place, lately more so in the summer than the traditional winters due to the drought(which seems to be coming to an end). 

I don't own any vacation rentals, but if I did it would be in locations that have steady attendance. Regardless of weather impact/time of the year. 

I would not look at P2P sites(Prosper/Lending Club/Etc) for real estate needs, they are not built for that. They are built for short term loans to consumers. 

I would look at crowdfunding RE sites like Fundrise, RealtyMogul, Realty Shares,etc. There are over 60+ sites out there. I would avoid the ones that aren't venture(VC) backed. They mostly invest with multi-units, not SFR.

These sites mostly offer debt. Not sure that would work for your needs. If you just need cash, and own the property, have a good debt/equity ratio, then they might. RealtyMogul seems to be getting active in the acquisition financing game, but only for established developers/flippers. I am not sure about their terms for helping on the acquisition/construction. 

If you own a multi-unit property, the crowdfunding websites offer liquidity to buy more. Their rates are similar to hard money lenders IMHO.