Hello Michael,
Congratulation on finding a 30 units. Also congratulation and having somebody that know like and trust you and is willing to partner with you in the acquisition. You have a couple options here and it's all about how you and your partner want to structure this deal. But typically the way I structure my deal is we will start at a 70/30 equity split and will work up to 80/20 or until we satisfy our investors expected returns. Being that your partner will be putting up the down payment and signing on the loan he or she will get the greater end of the equity.
To answer your question directly one by one here we go:
However, if I create an LLC and place the property underneath it will both owners have to apply for the mortgage loan?
It seems like you will be taking the lead on this acquisition so your responsibility will be a lot. It will be your responsibility to find a loan that the property will qualify for and provide your loan with the necessary paperwork, ie rent roll; T-3 and T-12. Typically in the multi family space the income of the property will qualify the property for the loan amongst a few other factors. Not sure what area you're located in but a 30 units if it's valued over $1.25 million you might be able to get a non-recourse, Agency Fannie Mae or Freddie Mac loan. If the property is able to qualify for a 80% leverage. Your partner would need to satisfy the mortgage brokers liquidity requirements, have the net worth equivalent to the amount of the loan and someone on your team will need to provide information that they have 24 months of experience with Fannie Mae and Freddie Mac loans and have managed properties of equal or greater size. If your partner is able to satisfy all the lenders requirements you do not have to sign on the lawn. If your partner cannot satisfy all the lenders requirements and you're not able to you can always find another partner to bridge the gap.
My credit is not that good so how can I receive a % of the property without have to go through the mortgage process on my end?
No need to worry Michael. You are providing your partner with an opportunity to make their money work for them. This 30 units will keep you busy up to closing and beyond you'll be earning your money but just for clarity there are a few ways you earn an income as an apartments syndicator: 1. You earn an acquisition fee which is usually 1 to 3% of the purchase price; 2. You get a percentage of the income based on your equity split: 3. You earn an asset management fee for managing the business plan; and 4. You also will get your equity split at disposition of the property.
My responsibility will hire the contractors, oversee the property manager, as well as stabilize via rent increase.
That's right, in addition to what you listed, as the asset manager you will be implementing the business plan to ensure that the property perform as it was underwritten; this will require you to conduct a weekly call or visit with the property manager; (this one is very important as you do not want to go more than a week without talking to your property manager any longer it could be a really bad day and you might not be able to provide your investor with the returns that they expected. You can fix a lot within one week but waiting a month to speak to property manager usually don't end well); if your partner is not taking an active role you'll be required to provide him or her with a monthly updates of the performance of the property; and also send out the distribution.
Any advice how I should structure this deal as well? How much stake should I get of the asset as well as after the refinancing?
Micheal this question can only be answered by the relationship that you have with your investors. It sounds like it's a single investor so this one should be easy. Talk to your lawyer preferably a real estate/syndication/SEC lawyer. If you have a lawyer that is all three it would just be a one stop shop. They will be able to help you to negotiate contracts, create the private placement memorandum (PPM), create an LLC amongst over things.
