What Do You Think About This Investment

I want to purchase a duplex. I’ve been preapproved for 100% financing on the property that is selling for $80,000. I would like to have $10,000 as start up capital in order to manage the property and there is NO WAY that i can get it on my own right now. I have two other investors that want to put up the $10,000. What i’m considering is creating an LLC with the other two investors. After i close on the duplex myself, i will go to the title company and add the LLC on to the title as joint owner. In turn the other two investors will put $10,000 into the LLC’s bank account. So the duplex will be co-owned by myself and the LLC. The LLC will be owned by myself and two others. The duplex is rented out fully on both sides and the total gross income is $1100 per month. Minus the PITI and Mortgage Ins. which comes to a total of about $700. Net income is $400. This $400 is split two ways between myself and the LLC. Please anyone give me some feedback and let me know if this sounds like a good deal.

Hello 7,
Sounds like a loser to me. With respect, there are a few numbers missing. Cost of maintaining the building other than just the debt service.
You have investors who want to be paid.
Vacancy rate for your area.
Daily business expences…
Check with Mike, He will know. He is The propertymanager on this forum
Good luck, Darin

Well as far as the daily expences go and the vacancy rate, funds for that would come out of the $10,000 that was put into the LLC’s account. If i’m getting $10,000 to manage the property and reserves to float the property for vacancies, how is this a bad deal. I own 50% of $80,000 and the LLC owns the other 50%. Out of the 50% that the LLC owns, I own 33%. My share totals to $40,000+$13,200(33% of $40,000)=$53,200+$10,000(funds invested)=$63,200. Each investor owns 33% of the LLC which comes out to $40,000-$13,200=$26,800. With both sides of the duplex rented out, it yeilds $400/per month after PITI. This is split 50/50 between me and the LLC. This offers cash flow and a growing LLC. I’m not seeing how this is bad. Please explain to me how this is bad so that i don’t make the mistake of my life.

Good Evening,
You have answered your own question. " As far as the daily expences go and the vacancy rate that would come out of the 10k put in the LLC". It should come from the rent roll. If it is coming out of the 10k that means you have a loser. The break down on ownership is great but …There are more costs involved and you haven’t showed them. Do you know what they are?
Just the way I see it, Darin


I don’t follow your arithmetic. The LLC’s assets are 50% of the property ($40K) and $10K cash for a total members equity of $50K. You own 33% of the LLC, as does each member, so each of you have a share of the LLC valued at $16,666.

If you add your equity in the LLC to your share of the property value, you have assets valued at $56,666. I don’t see how the $10K that is contributed to the LLC for operating capital is 100% yours,

depending on a lot of things like condition of the porety, local rental market, I woudl estimate you will be breakeven (plus, minus $100) if things go well.

by giving “income” to your investors, while you consume capital in really just a shell game. You are just giving the shareholders back their own money.

as for your financial structure, the moment that your investors sign up, they in effect will have doubled their money as the LLC will have assets of $40k equity plus $20k in cash. Guess what, friend, you have shot yourself in the foot as now you have $80k liability, $53k in equity and $6.7k in cash.

this is a severely flawed plan. also from my experience, long-term partnership where one or more parties has no cash in the game does not work very well. In the end, there is always a disagreement about the value of effort & time versus $$$ invested.

Okay everybody, thanks for responding. Let me put it this way. I want to buy a duplex at $80K. I personally don’t have enough reserves to manage the property. I have two investors that would like to provide me with the $10K that I would like to have to manage the property. How do I organize this Contract Agreement so that it is a win-win for everybody?
The investors are long-time associates and we plan to continue our relationship into future business.
As far as the duplex goes, i would take a loan of $80K. My monthly PITI would be $700. Gross rents are $1100/month. Operating income equals $400/month when fully occupied. Right now there is only one tenant in the unit paying $550/month. It will take approx. $1K to get the other unit in operating condition. I’m giving myself 3 months to get the other side rented.
What should I do? I hope you all come at me with some good advice! I need it right now!