Structuring Deal W Cash Partners??
First a little background, I am a 21 yr/old college student and about to graduate. I will have a good paying fulltime job when I get out of school. But my heart is in real estate investing. I live in NYC and I want to buy to rent Multi fam buildings. My origional strategy was to save for a couple of years to afford the DP on an expensive but profitable NYC MF brownstone (the lowest prices are in the $300k range in NYC for MF but they can and do cashflow rents are astronomical in comparison to the rest of the country). then use the cashflow from that and more savings to buy another, rinse and repeat. (this would all be done with low DP owner occupant loans)
My current situation is that a couple of my rather wealthy uncles have offered to provide capital for my investments, with out my asking! I am a sales man by trade and when somebody offers you money with out your even mentioning the product to them u know you are in a good place. This changes my game plan significantly obviously, I can get into the market much faster.
What I want to know is this:
1)How should deals like this be structured? partnership? LLC? more informally? (all parties can be trusted completely we are a tight knit family and my parents have done realestate deals in the past with my uncles for vacation properties and such to much success)
2)I would be putting in very little initial capital but would be doing all the work: finding, analyzing and managing the properties. What kind of % of equity/cashflow is reasonable for that work?
3)my credit is nonexistant (im still in college no car, just 1 credit card paid everymonth) should I use thier credit? if so how?
4)what kind of payouts are normal in this situaion?
5)should I go for higher Downpayments + cashflow because of the available capital or stick to my origional strategy of lowest possible DP and simply buy more property?
Any and all advise would be greatly appretiated. I know I am in a VERY favorable position and would hate to mess it up on account of lack of experience/knowledge.
BTW: I have been studyign realestate on my own for the past 2 years, Ive read everybook I can get my hadns on, study various sources of listings in my target area constantly and read as many forums and websites as I can find. The nice thing about being a student is that I just treat my RE studies as another course which just happens to be the most interesting and my favorite!
Thanks for any suggestions!
-Bobby
I was in your position a few years back..Now my credit score is mid-700's and climbing. I use hard money to fund my deals. Here is what I would do if I were you.
I would talk with your uncles about forming an LLC. If you three (if there are two uncles) form an LLC, you will in effect do this:
1) Bring their credit and cash together
2) Be able to start investing in real estate with out the use of your own cash or credit
This would be wise. You or an attorney can draft an agreement for how the profits and cash outs will be dispersed. Your uncles, on the other hand, are using your expertise! It s a beautiful thing!
Down the road, you can have the option to either buy them out or start another LLC for only your investments.
Just an idea. Good Luck
LLC is a good way to go if they want an interest in the property. If they are just going to lend you the money, they can just put a lien on the property. That would be the cheapest easiest way to go. If there are any problems with your performance of the loan, they can just foreclose. If you make lots of money when you sell in 2 or 3 or 10 years, then you can give them a percentage or just the remainder of the loan, whatever you choose.
You could also put the property in a trust and have everyone have a beneficial interest, with you as the trustee which means you would run things. The trust would have a mortgage in its name making payments to the uncle.
There really are a number of ways to set it up.