All Forum Posts by: Preston Gealy

@Blaise Peterson are you able to view my calculation?

@Blaise Peterson 

I am providing a new calculation using an existing property along with the following assumptions:

1. $8000 builder credit at closing

2. 6.375 interest rate at closing (April 2025)

3. 8% annual property value increase confirmed by my agent

4. 4% annual rent increase

5. No maintenance expenses in first year due to warranty on entire property

6. Assumes monthly cashflow is not distributed quarterly, but can be.  If distributed quarterly, the final numbers for cash partner would be decreased by $8,490

7. $91,783 cash into the deal by cash partner; $175,439 cash out of the deal for cash partner after sale in 5 years.

8. I hold property in my name and manage property.  I make $83,656 after sale in 5 years.

https://www.biggerpockets.com/analysis/rentals/2e7c8e71-8868...

Let me know if you have questions.

Preston Gealy

Let me rerun my old BiggerPockets calculation with update numbers and share it with you. That might explain it better than I am

Sorry for not answering your questions.  See my responses below:

So the owner pays 440k on day one. You do not pay anything on day one. Is that correct? Yes, I would not pay anything on day 1.  Owner pays the closing costs on a mortgage so the total cost of the townhome would not be due day 1.

You make mortgage payments beginning on day one and manage the property for 5-years. NOI is 42k. Owner gets 21k and you get 21k minus the P&I payments. Is that correct? NOI will equal 42K but that factors in P&I payments.

Sell at 5 years: 530k minus 42k (8%) equals 488k. Is that correct? Yes, that is correct

How did you calculate 121k each? Profit to me would be 488k minus owner's initial investment (440k) equals 48k. The 50/50 split would be 24k. What am I doing wrong? Initial  investment day 1 is $108,900 for closing fees ($82,500 + $26,400).  Mortgage is $247,500 on day 1 and after 5 years is approximately $234,000. After the sale in 5 years, the value of the townhouse increases from $330,000 to $450,000 (7% annual market rate in my area).  The balance of the loan is paid at closing and you have $216,000 equity.  After final sale closing costs ($36,000) you actually have $180,00 to split 50/50.  The more down payment you make, the less interest you pay on the mortgage which makes your profit at sale higher.

Couldn't the owner keep the property and take out a 75% loan (only 82k cash from owner), hire a PM @ 8%, cashflow about $350 per month, sell at 530k, pay off remaining principal (lets say 200k) and pay 42k closing costs, and walk away with 288k from an 82k investment?  Yes, that assumes the owner can have a mortgage in their name.

@Blaise Peterson an owner can certainly do this on their own. I am doing one and don’t have to split my profits. One benefit to the money partner is that they can still cashflow and make an after-sale profit without needing their own mortgage. This is great for investors who have maxed out the amount of mortgages they can hold or have reasons they cannot get a loan at the moment.

Another reason this deal could benefit  money partner is it limits the risk of holding a mortgage if the deal goes sour. We would have a partnership agreement that has an exit strategy that doesn’t leave you with a mortgage. 

I hope this helps. Do you have any suggestions for a better deal structure?

@Blaise Peterson the specific example I have is the cost of a new construction townhouse in my area is around $330,000. Mortgage, paying 25% down ($82,500), is $247,500. Closing costs are roughly 8% ($26,400) of the sale price. NOI on one we currently operate is $700 each month (paid out quarterly). After 5 years we sell and profit $200,000 based on growth rate of our area. Splitting all profits in half, each partner would make $121,000 each in the end.

There would be a legally binding contract and I would have the mortgage so if things go bad, I am liable for the mortgage payment. See Biggerpockets Daily podcast 184 for details on this structure.

I am looking for a money partner. I’ll be the risk partner. Property in my name and I manage the property. The money partner pays down payment and closing costs. 50/50 split of net income and the equity after 5 years. 

I'm looking for an investor to partner on a build to rent deal in Harmony, PA. Potential for $100,000 profit after sale in 5 years along with cashflow payouts. Message me for more details! 

Hey guys!

I am looking for someone to partner with on a rental in the Pittsburgh region.  PM me for details!