Short story: I have a 2MM deal with 100k yearly positive cash flow. I need $400k to put down on the deal to make it work.
I have 250, and I have 3 other investors with 50k each.
What can or should I offer them for putting their cash on the line?
Hi,
12.5% each of equity, cash flow and write-offs!
Set an investment term: 5 years, 7 years, 10 years!
Probable set up a partnership agreement with you as managing partner!
GR
Is 12.5% standard, low, high?
I want to avoid a partnership where I have to hold meetings and get permission to make decisions.
Also, I want to buy them out after a few years.
12.5% is the percentage of $50k each would be putting up toward the $400k you need to come up with
treat investors well, that way the next time you need cash it will be easy to get
Makes sense.
I am fine with giving them 12.5% of the cash flow, is it reasonable to expect to buy them out at their initial investment price after 5 years?
If I’m understanding this right:
They put up $50,000.
Cash flow is 100,000 per year so they get 12,500 per year return.
At the end of 5 years I buy them out at their original 50k, and they made $62,500 on the deal.
If that is correct, when do they get paid? Yearly? Monthly? Quarterly?
Andy and GR are, as usual, right on the money. I would simply ad that the services of a well qualified viper, I mean attorney, will ultimately be required so since you seem to have half the broad strokes down the search for the right counsel may be in order next.
Sounds like sweet deal, Have Fun
Jay,
As general partner you set when the payouts occur.
If you are the only partner actively involved in managing the property, you can pay yourself a set amount or percentage as compensation for managing. Disclose this before they decide to invest with you.
After a few years you should be able to refi and pay off your partners and your self. They will still be partners receiving their percentages until you ulimately sell the property.
Have an attorney draft the partnership agreement.