I have an interesting opportunity that I would like to bounce off this forum. An investor that I personally know and have a level of confidence in with his proven track record in real estate has a need to refinance an 8-plex out of hard money that has been rehabbed, filled, and stabalized. I don't have all the details yet as he will get that to me soon (profit & loss, rent rolls, receipts of rehab work, etc.). What I do know is that his net profit after PITI and operating expenses is about 25K, maybe higher (based on what his realised cash flow was for the last 6 months). Equity in the property is about 90K.

He is self employed as a real estate investor and realtor. As he is classified as a "real estate professional," he does not have a cap on what he can write off in real estate losses. Let's just say that his tax returns make it real hard for him to get bank loans these days as the banks go on documented income and will not go on stated income. My value add in the potential partnership is that I have a high earned income job, a very healthy debt to income ratio, and well established credibility in real estate as well. In short, I would be able to obtain the financing for the refinance as either the primary or sole signer and making the personal garuantee.

In an arrangement such as this, what do you think would be fair as far as a percentage of ownership? On the refinance it would not involve any money out of my pocket and will be strickly a passive investment for me. My initial thought was to be a 10% owner in the partnership with the option of buying additional shares at 1K per additional percentage of ownership up to and additional 40%. I think that his total out of pocket expenses in this deal has been about 40K. If I put in 40K, he would essentially be able to pull out his 40K and do the next deal. For me, I would essentially put in 40K into the deal as a passive investor as well as on the note for about a 31% cash on cash return plus an estimated future 45K capital gain. For the active partner, his return would be infinate. However, he would be trading sweat equity to manage an 8-plex for about 12.5K a year plus 45K in future capital gains.

I would like opinions both from the Active as well as Passive Real Estate Investors out there to validate if this would be a win/win deal or if one side seems a little lopsided. Thanks!

I am also a full time investor and have done multiple JV deals with cash/credit investors.

It really depends on the wants/needs of the investor. Are you looking for retirement savings? Cash-flow? Tax write off?

In some cases, we pay a fixed cash on cash return (10-15%), with zero equity position. Other times, we do a 50/50 equity/cash-flow split for investors who put up the down payment and closing costs.

Define your your goals (numbers and timeline) are and work to structure your deals accordingly. Decide what % of return is acceptable for you and seek out investments options which meet your needs. Don't focus much on what the other side is making. As long as your needs are being met and you are doing better than your other investing alternatives, it is a win.

Happy Investing.

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