All Forum Posts by: Michael Lautenslager

I am looking for insights from brokers and investors to compare the exit strategy of a project that can be executed in a couple ways. I understand there will be some other variables and influences but I would like to l isolate just a couple differences to gauge the impacts.

I have a property that is properly zoned and adequate size to build eight 5-plexes or ten 4-plexes. so 40 units total. both floor plans have the same sqft per unit and lets consider construction and all other subdivision amd permitting costs the same for comparison sake.

how would you assess this deal? would it be a target CAP rate? if so what have you seen recently for each arrangement? or a CoC valuation? would you purchase all 40 at once or would we be better off selling individual buildings? a 4 plex qualifies for different loans than a 5 plex how would this be considered in your market valuations?

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A partner and I are buying a new construction condo and planning to sell quickly and capture the equity growth since I secured the option.

we have some options as far as financing. The current structure thay my partner and I agreed on was 50/50. One woul pay his half cash and the other is going to finance their half.

the commercial loan only requires 30% down and the loan officer just said thay since half the purchase price is being brought cash they dont necessarily need the financed portion. If the portion is financed then it would reduce the loan amount from 50% of the purchase price down to about 35% of the price total.

As a paetnership which would you choose and why? Each partner puts up cash or not require the partner financing to bring cash?

Thoughts?

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Quote from @Dave Foster:

@Michael Lautenslager, Some lenders prefer tenants. Some prefer LLCs. Some don't care. However in order for an llc to be lendable. It needs to be a seasoned LLC that can show income as a going concern for a couple of years generally. Otherwise you're underwriting on your personal strength anyway.

I'd say that we are underwriting on personal finances. considering this LLC partnerships was just formed and strickly for this property. we originally planned to both use our own LLCs. that we after this we could easily split the proceeds. but the single LLC was the lenders suggestion. the way I understood their rationale was they could not split the debt between two LLCs. if one defaulted, how does the bank get half the property.

Again, my partner and I are very much on the same page and going to make this happen. but we are planning our exit strategy. we want to be able to execute 1031 exchanges on different properties.

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@Dave Foster thanks. would owning the real estate as tenants in common vs an LLC be something that may effect the loan and underwriting?

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Quote from @Account Closed:

Quote from @Gerardo Gallardo:

Quote from @Account Closed:

Quote from @Gerardo Gallardo:

Of course I’m being sarcastic here. I have a question about entities. Before I ask my question, I have to say that I have spent a few days looking through the forum and even though I found really good information I haven’t found an answer that fit my situation.
I'm partnering up 50-50 to do a new construction BRRR with a Home Builder. This person has his own LLC but since he usually build and then sell the houses that works for him. My plan is to create a new LLC where we will be 50-50 partners. Is there a more tax efficient way of getting this done? Are they any implication to refinance the property after built since it will be in 50-50 partnership? I'm currently looking for a CPA to help me set this entity right from the beginning so if you have a recommendation it will be highly appreciated.

Do not do a partnership, especailly at 50/50. That's a long drawn out lawsuit waiting to happen. If you do a partnership, you are taking on the risk of anything he or his family members may do wrong inside and outside of the project. Ask a liability (personal injury) attorney.

Much more effective and a lot safer, you can both have LLCs inside a "Joint Venture Agreement". One of you should have 51% ownership of the Agreement so decisions can be made if the project lags or doesn't turn out the way you think it should.

Thanks Mike! Let me see I understand correctly. What you are recommending is for each of us to have our own LLC inside a 51-49 Joint Venture Agreement? Will the property be owned by one of the LLC or by the Joint Venture?

When I do JV Agreements, one party provides the capital and the other party provides the work and expertise. The simple way to do it is for one to take the property into their LLC and the other have a recorded interest. But technically you each could have your 51/49 shares of ownership on the Warranty Deed. Some of it depends on the long term purpose of the JV. If it is to build & hold, that is very different than build & sell which is very different than buy & STR or LTR or to sell on a Lease/Option getting an option fee.

You have to first decide what your exit strategy is and then you work backwards to know how to set up your entities.

Does this make it easier for each LLC to exit the deal and do their own 1031 exchange?

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Quote from @Joe Villeneuve:

The answer to your question is, as it usually is, hidden in plain sight within the question itself.

If each of you are contributing different things, each of these "things" (I will refer to them as "roles"), has a different value as it relates to each of the other roles. NOT a percentage, just a number from 1 to 10. So:

1 - list all of these roles, then AFTER this list is complete, without regard for who is doing what (this may change),

2 - assign a number from 1 to 10 to each role...there can be duplicates since some roles may be equal in value.

3 - Now assign each role to each partner.

4 - Then add up ALL of the numbers from the main list (Step #2),

5 - and divide 100 by that number. You should come up with a master percentage (decimal).

6 - Now add up all the numbers that were assigned to each partner (Step #3),

7 - and multiply that number by the number you got in Step #5.

These are the percentages each partner should get, which are based on an agreed on relationship between the roles that each partner performs.

I've NEVER, in all the partnerships I've set up over many long years of using this method, have I EVER had a problem with the results. Even the ones where I thought the partnership would never happen (first couple of times I used it). Now, I just state this is how we are going to decide the percentages, and we move forward.

Thanks Joe. I like this approach in that it is clear, up front and agreed on. I do think it could be difficult to agree to a value of each role.

Have you found that the value you assign to roles has changed after multiple partnership or varies based on the partner? Are there any specific roles you found were under or over valued using your method?

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Mobile, Alabama

A partner and I are purchasing and planning to quickly sell a condo. What would be a fair consession or agreement considering what we can each bring to the table?

We were trying to keep it as close to 50/50 stakes as possible and running through a few scenarios. We feel we are close but know one party or the other just may need to make some small consessions or adjustments so that all seems fair.

so I'd like to know what this community of new and experienced investors seems fair.

The condo purchase price is $885k. The loan will be a commercial loan with 30% down. Sale price is projected to be about $1.05M

Scenario 1. Party A would like to bring cash for their portion of the deal. Party B needs to finance. Lender said the LLC partnership can purchase the property and they could assign the debt gaurentee to the LLC member of Party B. In this case Party B could still put money down but the LO said it would not be required.

scenario 2. Party A brings less than 50% cash (approx 150k). Party B brings rest of 30% down payment and is still the gaurentee for the loan.

we are both confident we can sell quickly. So carrying cost can be managed. We agreed that we should discuss and consider our plan for paying for carry cost while trying to sell and during closing. If we do not get our target price we also agreed we want to discuss and have a plan for a hold and use as a STR. We both have STR condos under management companies so we know how it would be run. But we want to agree how we pay for carry costs and eventually get to a 50/50 stake.

Please provide your thoughts and experiences. Thanks!

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Mobile, Alabama

All Forum Posts by: Michael Lautenslager

Michael Lautenslager has started 3 posts and replied 7 times.

Post: Planning the exit strategy

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