I'm considering going into multi-units. For a while now, I've had only SFH's and several plexes, but these little onesie-twosie things are limited in scope and value growth potential when talking about property that can be had for $15K-$30K per unit.

Got my eyes on place with 17 units, near but not too close to a high traffic intersection (good visibility), low crime rate, within walking/bicycling distance to the local University with over 25,000 student body population. Rent to purchase price is 1.6% ($495/month, $30K per unit). Water, lawn care and trash provided. I'd like to get it down to $25K per unit...total $425,000 purchase price. I think the rents are slightly below market...should be around $525 each, possibly $550 due to proximity to the university & excellent walk/drive distance to employment/retail/government centers. Good schools too! (7-8 on the 10 point scale)

The trick is I will have to make this a partnership deal or another one like it using fellow investors. Don't have the cash to swing a deal like this by myself. I am not a fan of borrowing money, so that option is out.

My thought is I want to be the sole owner/manager (only person on the Deed), but have my investors as "silent" partners and buy them out of the deal within 7 years. Kind of like syndicating a deal, but without all the rigmarole of having to formally qualify them as accredited investors per SEC regs. If I have read correctly, I shouldn't have to comply with investor "accrediting" since this deal is relatively small, won't be generally solicited to the public, and it is entirely intrastate, which appears to qualify it for an exemption. I'm new to this though, so if you're heard otherwise, let me know. Yes, I will be speaking with my attorney when the time comes. This is the "first look" stage of the game.

Another possibility is forming an LLC, but then we have a lot of other hurdles to go thru and if we get a rogue voting member and/or his/her spouse or heir who wants to get silly....well....you know how that goes. Too many cooks in the kitchen. I'd really prefer to avoid shared ownership, if it's doable without too much hassle.

Maybe I would do shared ownership if each investor give me an option contract to buy them out for their original share contributed to the deal plus whatever profit margin we agree on after 7 years.

Thanks, NE. I know where you're coming from, but to be clear it is not fear that keeps me away from borrowing. I understand borrowing, leverage, debt coverage, etc.

It's my Lord and Master of the Universe who says borrowing isn't part of his plan for my life. I have had a clear understanding of this since 2008, so the case is closed. I could be as comfy with borrowing as a baby nestled in a stack of 1000-thread count towels freshly laundered with Downy...and still I can not borrow. It is, as I said, not an option.

I like the idea, the concept of using equity instead of debt. The pitfalls that I see in the deal that you have described is that you want to buy and hold, and knowing you are not likely to be offering a fantastic return on investors money, because a.) you are cheap. b.) the deal isn't likely to support paying a high return to investors......look at the deal from the investors perspective and maybe you can give them a compelling reason to invest.

One more thing to consider before selecting an investor:

The market is heating up here, but if I look really hard, and am patient (my empire is big enough~not really looking to grow), I can find a SFH for $15,000 to $20,000 that will rent for $550-$600. I pay no utilities. Your deal for $30,000 a unit wouldn't interest me @ this stage of my life.

HOWEVER, that being said, my SFH's will not appreciate as much as others will. But I'm looking for cash flow, not appreciation.

It sounds like the 17 unit would target different kinds of renters than your SFH. I personally like that aspect. Vacancy rates for SFH could go up but apartment vacancy doesn't. Or, vice versa.

Sid, you and I have had this discussion plenty of times and we both know where each other stands. I've put a face to your name now and look forward to sharing more meals together in the future!

if you don't have the cash, no matter how you twist the language you are going to be borrowing/in debt.

I think you need to look at it from the investor's/ partner's point of view - what is the upside for them of investing that much money for no equity position for 5+ years?

one other thing - with 17 units, will you need an on site manager or can you handle that along with your other properties ... I forget if you still have a 9-5 job.

I think places of this size, as long as no major expenses come up(especially unexpected ones) are major cash cows. That said, if you've never owned a multiunit, maybe a smaller scale such as 6/7 units may be a better beginning.

I put up $425,000.00, don't get my name on the deed, don't have a signed promissory note, don't get any mortgage payments, and in 7 years, you own the building.

Thanks for the thoughts everyone. Yes, I realize it's not a typical scenario, but it's going to be an equity deal.

Right now my plan is cash on cash return being the main attraction. The short-benefit is quarterly profit sharing from rents after expenses, paid in proportion to the amount invested. The long-benefit is cashing out the investors and paying them an additional profit after year 7 from my own cash as it builds up, or by offering the deal again to a new group of investors, or by selling the property.

Sisco, I re-read your second post about having someone else buy the property then optioning it to me. I like that...very creative. Keeps me in a good spot as manager of the day-to-day.

I can't get over $ 425,000 for 17 units.

Sid, I second the comments of others on this board. I understand and respect your decision to not use debt.

However, for the life of me, knowing I can get 8 to 10 % on my money with low risk and virtually no management effort, I can''t see why I'd want an equity position in this venture.

Your deal involves asking a stranger to "invest" in your building, with no equity, no name on the deed; a promise to get bought out of an illiquid investment by a manger/owner who has never owned a multi like this before.

Anyway you slice it, to an outside investor, this is a high risk deal, in the hard money interest rate or equivalent range. At 20%, this would need a payment of about $1,500,000 in seven years on a $425,000 investment, which is not realistic given this underlying property.

Sid,

I view debt as owing someone no matter what.

I have partnered with certain persons where we SHARE the risk and the profit. They provide the money and I provide the work. If we MAKE money we share it. If we don't make money we have nothing to share.

Income minus expenses minus = profit which is divided by 49% + 51% (MY side). We use My part to buy out the money partner.

The better I manage the faster I can buy him out.

I had a deal like this on the table with calculations that showed me as sole owner in 5.5 years.

BRAD

17 units with 95% collected rent yields approx. 96K

expenses based on averages are going to be 3500 per unit. Assume a 9 cap for your area, I guess

400K - 420K

On the downside: you may not collect 95%. More turnover for college students

upside: raise rent, you can reduce expenses since you do more yourself

don't want to get into a religious discussion as I'm certainly no religious scholar ... not even a religious person ... but I don't understand what religion has to do with borrowing.

Churches borrow money. Pastors borrow money. Most church goers borrow money. I understand everyone has their own personal beliefs but I'd say using religion to not borrow makes you the minority.

Nicole, I'm not a huge religious person myself. I still go to church however for reasons I've found necessary and was raised in it as well.

In the Bible, it says the borrow is slave to the lender.

That verse doesn't say don't borrow, it's says simply be aware of that.

It is true that a borrower is slave to a lender.

Luckily, in real estate, we can "sub out" that debt slavery to tenants.

God also wants us to be successful and do our best.

Sid and I have had legendary discussions regarding this topic in the past and I know where's he's coming from and that's fine. It will require of him to be extra creative.

Sid, you may want to try what Napolean shill did when he needed a name for his book "Think and Grow Rich".

He put in all the effort and research to write the book and couldn't think of the name.

He basically yelled at the universe and demanded the universe provide him with a name for his book he worked so hard on. If you dig in YouTube enough he, you can probably find that audio.

You'll be surprised what can happen when you demand this from the universe!

If you work hard on the 17 unit and put everything that you have into it and demand an answer and a solution to do this debt-free and so it works for everyone, you'll come up with the answer that you need.

Christianity is not the only religion that views debt dimly. Islam looks at it in a similar fashion by prohibiting interest.

I see nothing wrong with the judicious use of credit, but the bible is correct; the borrower is slave to the lender and for me credit is to be treated like fire; helpful if contained and used carefully.

Phm, as I understand it, an equity payout avoids the interest prohibition. For sure, its semantics in a way, but keep in mind that many of these guys would prefer to avoid paper currencies altogether and use gold. A gold based system eliminates banks as we know it and I think the Koranic prohibition has to be viewed in the context of a different monetary system.

I don't excuse the irresponsible use of credit but in a consumption based society where the idea of consuming is marketed at every turn, I think it's inevitable that you'll have abuses of credit whether it's injudicious use or robo signing of mortgages.

Sid,

You don't have to own it to make money.

Interesting discussion on biblical perspectives on debt: en.wikipedia.org/wiki/Loans_and_interest_in_Judaism Lots of ideas there to circumvent whatever definition of "borrowing" that you choose.

It comes down to whatever you feel is following the spirit of the law. I share your faith, and look at those laws in context. They were designed to keep the poor from the "slavery" of debt, which is what the PayDay Loan places impose. I've turned down hard-money lending opportunities because I felt they gave me a disproportionate share of the return.

Don't kid yourself investor money is debt, quite frankly the worst kind. The more people you have in the deal the more risk you have of losing control. This is one of the reasons I have never syndicated. If you get four people to kick in $100k for example, how do you get them out? They are going to want a 10%-15% return and an exit strategy in 5-7 years, or less.

Two ways to go larger:

1. Start a relationship with a bank and borrow at 70% LTV like the rest of us.

2. Make a boat load of money somewhere else, and buy this with cash.

$400k isn't that much, if you make $40k a flip its 10 flips plus taxes, shouldn't take more than a few years to save up.

Being totally nonreligious simplifies things for me.