All Forum Posts by: Jonathan G.

Pretty standard. Can go longer with agency debt.  

True, small multifamily are typically not cash flowing because of the food chain unless you self manage. 

It depends on your original business plan. As the GP, we received more equity interest in the deal in exchange and as a condition for the refinance, allowing our passive investors to fully cash out+profits.   

1) GP will get class A for his equity contributions with all applicable terms as all other LPs. GP will also get class B for management and syndicating the deal.
2) We give our limited partners a regular preference in liquidation (i.e. LPs get their original investment back first).
3) This is on a case by case basis. I believe your LPs will normally require a preference over class B holders.
4) Can be either. We are giving preference on capital gain only. They can negotiate getting a preferred return on spendable income…..
5) Again, this is on a case by case basis, it’s all a matter of negotiation with your partners.

Forgot to mention that we also charge a 3% acquisition fee up front.....

Here is how we do it on smaller deals.

We have limited members contributing equity and managing members putting the deal together, managing it all the way to disposition and provide personal guarantee on the loan on smaller loan amounts. Loans larger than $2M can typically be none recourse. Managing members/GPs get 25%-30% of net profits and capital gain and limited members get 70%-75%. Limited members get preference in liquidation also. Get an attorney to draft the operating agreement and try dealing with accredited investors only if you can so you don’t need to put together a full PPM. Subscription agreement and good operating agreement should be ok.

As Brian mentioned, there is a lot to learn but this should not scare you off. Learning never ends. Talk to an attorney and just go ahead and do it. Keep the first one simple and start small. Ideally with friends and family.

Good luck!

I would not buy a residential property in a commercial area period.

Right, yet other markets like DFW are following with similar rent growth. The question is how likely is it to see the 13% rent growth continue going forward….Rent growth is already built into the asking price. If you can overcome the remote management issue you can benefit greatly from investing out of state. I’m invested in both California and Texas. They are both good markets right now but Texas has the potential to provide better cash flow. California is good on long term appreciation but having a low cash flow in California is a big risk to my opinion.

Here is how we make money – buy at the right time i.e. when market is down and at the right price – so you at least break even with your cash flow. Then, turn it around when market picks up. Currently, we all see increased rent and occupancy so I think it’s a good time for people with rentals. Rental market will only continue to improve with how economy is right now. At least for us, Real estate has never been a cash flow play. It’s the long/short term appreciation or market flips what may turn these investments into winners. Not their ongoing cash flow…

I can’t argue with such a study. Just talking from real life experience. These are all bills paid, Class C. With this hot summer in Texas, only utilities are 36% of revenues and even more…. but again, I can’t argue with a study looking at 10s of thousands of units…. My 70% considers ongoing expenses and deferred maintenance. Does not include any rehabs, acquisition or major cap ex. When you factor rent concessions and delinquency on these building and an average turnover with the deferred maintenance clean up for about a year after acquisition and increased utilities you get to 65-70%. Not to mention City code compliance issues....My actual cap rate is around 8%-9%.