Yes another multi family question

[MarkTorgerson]

Hello

I already have a couple of 12-suite apartments and am looking at taking my portfolio to that next level. The issue I am finding is not with investors, but with investors that have enough money. Dependent on where you are investing, the bank is generally requiring several hundred thousand dollars down.
I am having no problem finding investors for around $100,000 each. How would you suggest I structure a venture where I have multiple investors? What would you suggest I take for my part of the project (assuming I am in for zero cash)?
I think I could get as many as 10 investors at 100grand each and would like some advice on how to move forward. The exit strategy would also certainly be an issue with that many investors.

Mark

 

[DonCampbell]

Once you start pooling resources, you begin to increase the risk and will ahve to spend a significant sum on legal agreements as you will be potentially entering into a securities controlled situation.

If they are all close personal friends, you can pool their money and divide up the "Money Partner`s` 50% of the deal based on the amount that each person puts in.

For instance, if you need $500,000 and you get 2 people with $250,000 then they share the "Money Partner" 50% equally.

 

[GarthChapman]

To help you decide how to calculate how much of the deal to offer to your investors read this thread

50/50 .. is this fair ?, What is an equitable split between RE expert and investor

 

[Thomas Beyer]

You need a corporation or a limited partnership or a trust that holds the asset for any commercial deal (assuming Alberta). This legal vehicle is usually controlled by you, but the investors may be given right to turf you upon certain events (say your death or your mortgage default or your incompetence or your 38th birthday .. whatever the agreement states !!)

You need a much more sophisticated legal agreement, namely at least a USA (unanimous shareholder agreement) signed by all parties.

Try to take 50%, but 33% may be OK .. what ever you can sell. Try to get some upfront acquisition fees or sales commissions or at least an ongoing asset management fee as teh equity may be years to crystalize. We work from investor the profit side in: if you can show 15-20%/year for the investor, you can usually take the rest. This maybe 75% or 50% or 25%.

You could also offer a hurdle rate of say 8%/year .. and then 50/50 or 70/30 ..

You are potentially / likely selling securities if not all known to you. Then you need an offering memorandum which costs about 25-30K. Then you should register with the securities commissions of both the issueing province and each one where the investor resides. A USA is about 5-15K.

You must think upfront how or when to exit, say in 5 years when the mortgage is due, or at the earliest in 5 years, or when the building is worth 45% more than purchased or when one investor say "sell" or when a majority says "sell" .. or when you say sell .. this is where some investors disappear due to disagreement upfront ! So this is really crucial to decide early on !

 

[MarkTorgerson]

QUOTE (thomasbeyer2000 @ Sep 21 2008, 08:34 PM) You need a corporation or a limited partnership or a trust that holds the asset for any commercial deal (assuming Alberta). This legal vehicle is usually controlled by you, but the investors may be given right to turf you upon certain events (say your death or your mortgage default or your incompetence or your 38th birthday .. whatever the agreement states !!)

You need a much more sophisticated legal agreement, namely at least a USA (unanimous shareholder agreement) signed by all parties.

Try to take 50%, but 33% may be OK .. what ever you can sell. Try to get some upfront acquisition fees or sales commissions or at least an ongoing asset management fee as teh equity may be years to crystalize. We work from investor the profit side in: if you can show 15-20%/year for the investor, you can usually take the rest. This maybe 75% or 50% or 25%.

You could also offer a hurdle rate of say 8%/year .. and then 50/50 or 70/30 ..

You are potentially / likely selling securities if not all known to you. Then you need an offering memorandum which costs about 25-30K. Then you should register with the securities commissions of both the issueing province and each one where the investor resides. A USA is about 5-15K.

You must think upfront how or when to exit, say in 5 years when the mortgage is due, or at the earliest in 5 years, or when the building is worth 45% more than purchased or when one investor say "sell" or when a majority says "sell" .. or when you say sell .. this is where some investors disappear due to disagreement upfront ! So this is really crucial to decide early on !

Thanks for the input everyone!! I thought this thread was going to slide through without a response.

Mark