All Forum Posts by: Thomas Smith

In looking further into this it seems as though a Joint Venture structure is what I am looking for.  Basically the friends that are looking to invest would be bringing enough to the table for a downpayment on a 5-10 unit multifamily deal.  From what I have seen, a fair way of doing this would be a 50/50 for everything including cashflow and equity. But for educational purposes, lets just take a scenario and say that I have someone willing to bring $100k to the table and their interest is learning real estate investing as well as earning some income along the way.  What would be your thoughts on structuring this sort of deal? 

My thoughts: I would enter into a JV with this individual on a 50/50 everything split. They would bring the capital to the table and I would bring the knowledge/management. The goal being to find a value add scenario which would allow for a refinance or sell after a few years to get their money back (with interest) as well as splitting any equity gained up to that point. Does this seem like a logical approach?

I am looking for some advice and hopefully a mentor with putting together private money on multifamily unit deals.  I currently have a 33-unit portfolio of my own but this has all been done by using my own capital and/or owner financing opportunities.  In order for me to scale, private investors will be a necessity.  I currently have several deals coming in and a list of friends who are ready to start investing with me on the capital side.  Unfortunately, I do not have any experience with the legalities of structuring a deal with private money, nor do I have the experience to understand how to structure a deal with my investors to make it desirable for them as well as myself.  Obviously there are many ways of doing this and at the end of the day as long as everyone is happy then it works, but I want to make sure I am doing things legally as well as protecting myself against a bad deal with the investors involved.  

I'll soon be selling a property in which I'll be profiting around $25k. In all, I'll have around $35k to use for my next investment. I have a credit Union willing to sell a foreclosure to me for $25k. I have a couple options. I can pay cash for the property and then finance a loan to rehab the property or potentially use a business loan through the credit Union to purchase and rehab the property. This would be a BRRR situation as the ARV will be $75k with approx $20k needed for rehab (total investment $45k). Should I pay cash for the property and finance a rehab or should I finance the house and rehab from the beginning? Is there a tax advantage to either? Trying to decide on the best route to take. Any advice always welcome.

I am currently in a 50/50 partnership on 2-SFH and 2-Fourplexes. The partnership has run its course and I am trying to buy him out for $40k. I would like to refinance these properties into a 30-year mortgage to increase cash flows. From what I can tell, Freddie Mac is looking to be the best option for this but I am not familiar with these mortgages and requirements for refinancing. Two of the mortgages were put into our personal names and two of them were put into the LLC when we purchased them. From what I have heard from a local lender, I would technically have to purchase the two properties that are in the LLC and could not do a simple refi since they are not in my personal name. This means I would have to have the 20% down, my $40K to pay him off, closing costs, and 6 months of reserves to show. Is this something that someone is familiar with and could explain the requirements for Fannie/Freddie refinance loans a little better? Am I correct in thinking I will need to purchase the two LLC properties instead of just refinancing them even though I am an owner in the company? Any advice on a strategy would be very helpful. I can possibly come up with the $40k to pay him but that would take out my options for having the 20% down.

@Bryan S. Will do! I’ve heard of it but never looked into it. Thanks!

@Anthony Wick Thanks for the insight!

@Anthony Wick 

Our agreement is very much the same. I will handle any and every issue and the LLC will pay me 7% of gross rents. I did 7% because it is a good deal for us as a partnership but it finally pays me for the work I have been doing since we began investing together. Basically covers personal expenses while allowing the LLC to continue to grow in value. This will be placed in writing (as I have learned things need to be). However, I have begun pursuing deals outside of the partnership on a solo basis for the time being. Closing on an owner finance single family within the next couple of weeks.

@Anthony Wick I almost choked when he told me his number but yes this was just the opener to discussion.  But with such a large gap, I wanted to make sure that like minded people were on the same page as myself.  He is in the mindset that I should buy him out based on the future value of the properties if we were to hang on to them (even though he wants bought out now).  We have not had our properties appraised and the bank did an in-house "valuation" of the properties when we purchased them.  There are a couple of the places that were valued much higher than what I know the market would have been (happy at the time of purchase) which has given him this inflated mindset.  The properties aren't selling at the prices he listed them so I figured that would have been his first indicator that his numbers are way off.  

The good news in this whole thing is that if we don't agree upon a buyout number, we have agreed to pay me as the property manager and he stays in as a 50% equity partner.  This is not a terrible scenario but I still would rather be able to move on with this partnership.  Again, wanting to save a friendship.

@Caleb Heimsoth big lessons have been learned along the way but I'm much more knowledgeable than I was when we purchased so if I walk away with anything, it'll be plenty of knowledge for the future

@Anthony Wick  Thanks!  I hoped I was on the right track with my thinking but he came in at about $150k higher than where my number would have been had he asked me for a buyout number so I wanted to get some confirmation.

@Anthony Wick We do have an LLC on this partnership but we do not have any paperwork to support it outside of our verbal 50/50 agreement. Young investors shooting for the stars out of the gates, we figured it would never go wrong. Lessons learned.

When you say the buyout should be 50% of the 92k, would the mortgage first be subtracted from the 92k?  

The way I looked at it was would get an appraisal, take that appraised amount and subtract our current mortgage debts, and then take 50% of that to come to our number.  Because although these properties will one day be free and clear of a mortgage, they currently aren't, and sooner or later they will need improvements to them.  Especially since he approached me about a buyout and not the other way around.  I'm looking more in terms of present value vs future value just based on him wanting bought out right now.