Nery, given the friends you describe, I am legitimately concerned about the nature of parties who will loan you this money. Don’t be too “attached” to any particular body member, is what I’m saying.
actually i plan to use as much of my money as i can so i can keep a larger share of the pie, i am estimating maybe 250k+ from me depending on when prices crash and how much i can accrue to that point. I have the operator buddy who will match what i drop, his current net worth is same as me around 400k. So that’ll allow us to buy something worth at the most $1.3m. now if i see a larger better deal, i have many friends who have net worths over 5m+. i would only want to give 1 more person equal partnership as me. so thats 750k down. that’ll allow us to get something at 2m. if we need more money, i can just ask the person to ante up and adjust ownership. but the bottom line is, i would prefer to own all of it, but if you bring value, i am willing to share. current goal is 15 units. just so i dont need an onsite prop manager.
This is a really bad plan.
plz educate why it’s bad and waht you think is a smarter move.
The smarter move is to leverage off of other peoples’ equity with a GP/LP structure that gives you a promoted interest. Partner up with your operator guy to form a GP entity/deal sponsor. Then go out and raise LP equity from your network. The GP puts in 10% of the equity and gets, say, 25% on the back end after the pref. The IRR on your personal equity goes from 15 to 40+.
This might be something you do after the 1st deal and you get your feet wet. Once you demonstrate you can execute, there’s no reason to burn all your capital on deals without a promote.
…now if you weren’t in a really crowded sector, competing with mom & pops who overpay for assets as a retirement savings plan, you’d be on to something.
lol which is why i would never work with a gp. we all bring value, there is no need to make things unfair for 1 party or another.
i am doing this for 2 things. maximize my leverage. and scale so i dont have to do shit. im not here to profit from friends. also we do business on other things, so i gotta play nice.
and its a crowded sector right now. if it continues to remain crowded then i wont touch it. there has to be good deal for me to even consider it. as long as im making 15% cashflow on my down payment. i will pull the trigger.
Kids these days, gotta spoon feed them everything. Whoever actually adds value, bring them into the GP. Then go out and find equity that is happy to pay for PE returns in a passive position. Instead of doing a $2 mm deal, do at $10 mm deal.
I for one never understood this crowd. Nerdy seems like he would be too into bottles n models to be a FIRE dude. Maybe I need a hobby bc I dont know what I would do with all that free time. I also like my work though. Plus never being able to spend money or have any luxury items. Live now/live later as long as you have some balance seems good, why would you want to scrimp every dollar when young and potentially go broke or get tired of living that frugal lifestyle down the road.
lol 2m is big enough given what i am worth. i dont want to bite more than i can chew. if i kill it, then i will take ur advice. anyways! yea bro im a big fire guy! My childhood dream is to retire at 35 and have bottles and models for life!
yummm- alicia keys
https://youtu.be/J91ti_MpdHA?t=5
She’s just a girl, and she’s on fire Hotter than a fantasy, lonely like a highway She’s living in a world, and it’s on fire Feeling the catastrophe, but she knows she can fly away [Brigde] Oh, she got both feet on the ground And she’s burning it down Oh, she got her head in the clouds And she’s not backing down [Hook] This girl is on fire
i don’t think you’ll ever see the day that the market will give you a 15 cash on cash on multifamily at any scale. Now, I’m doing 15s because I’m in the right sector, but this ain’t it. No I’m not going to tell you.
its happened before in 2012. truth be told, id bite at 10% cash on cash.
on multifamily? I call bullsh!t.
call it what you want to call it. but cap rates were high enough, and interest rates were extremely low. if it was like that in los angeles. i imagine it was the same for everywhere else.
apparently during 2000 the cap rates were even better. but the problem was interest rates.
Precisely. Nerdy, money in RE is made by using other peoples money, not your own.
i understand that. but there’s enough money you can make levered through a bank. there is no need to shit on your investors.
A passive investor will be happy to reap a reasonable pref on their investment and let you and your manager do all the work. Too many guys sharing the same ownership but doing different shares of work (or no work at all) is a better way to F up a friendship. Speaking from personal experience. Give them an LP share and be 100% up front about how it works. Should be no resentment if you deliver their returns and a nice chunk of sale proceeds.
you are wise.
i dont mind dropping friends that have no value.
try doing that when you’re under an operating agreement.