Hi NicK:
I have been approached with a similar situation. I have flipped about 8 houses in Pittsburgh, PA. My private lender has a non-accredited investor that wants to diversify their portfolio with rentals. They do not know much about construction and do not know the market at all. The deal we are discussing is an equity split of around 65/35. They will put up the money to buy and rehab the property using whatever means they choose. Most likely they will leverage their funds with the lender to put in 20% of the LTV. Let's say in Pittsburgh I buy a house for $85k and put about $55k into it ( New roof, HVAC, service line & electrical panel, floors, bath, kitchen cabinets & countertops, water heater, and interior paint). They will fund the purchase and rehab costs. Once tenanted, it will rent for about $1600 maybe a little higher, but let's be conservative.
Once Rented, the investor will refinance the loan to a 30-year fixed investment property loan. In this particular deal, I can get comps much higher than the invested $140k (more like $250k) so getting all the money back out works. My DSCR is also in check, so the investor gets 100% of their money back (including 5% for the vacancy, 3% for maintenance, 3% for CapEX, and 7% for Property management which I keep) and the property still cash flows about $350 per month. Nothing to write home about. These numbers might normally be low, but keep in mind we just renovated the property. I will do property management and keep the 7% as well as 35% of the rent. When sold I also get 35%. The house is on the good side of Pittsburgh and has grown steadily at 6-8% (actually better but again let's be conservative) year over year for the last 20 years. I put in sweat equity, with limited downside, and a potential 8% growth or better upside, plus a property management fee of 7%, and 35% of rents. Also, I'm only the Project Manager. I don't do the work, I manage it. I have licensed contractors for all the trades that I schedule and do the work. I also have fully licensed GC's that do some work and others do specialty work (MEP Mechanical, Electrical Plumbing is outsourced).
I'm not suggesting that this is what you should do but only to give an idea of a real-life example and hopefully spark some ideas. Especially those who might be reading and have no money to get started. In this real-life example, I only leveraged my knowledge of the market and construction, found a deal, and put together the pieces.
Cordially
Robert
