I read the article on this topic by Ralph (very helpful). I am wondering how common this is in today’s environment for parks of any quality?Thanks.
If your getting a park with zero down, through something creative on the contract side of the fence- the park or the owner probably has something odd going on. Avoiding a tax hit, maybe hiding the asset from a separation or divorce, the property going into a trust, or some sort of infrastructure issue the owner can not fix. Now- if you have a great park under contract, it is quite easy to put together a partnership where ‘you’ are no money into the deal, ‘you’ have an ownership interest and you have used others money to fund the deal. If the park is a good one- the ‘equity investors’ get a very good return, and your equity stake will do well also. I have a short list of people with cash in hand to invest in these deals that are not operators, but only want a return. I do this on a partnership level, where Dave and Frank call this a ‘fund’. There are some IRS rules you must follow, and some SEC rules once you reach a certain number of deals involving the same partners. So know how you can meet investors, know the accredited investor rules, and understand active and passive partnerships and how they might effect some of the real property benefits- like depreciation… I now fund all of my deals through some sort of partnership agreement with passive investors. My point is- there are lots of ways to get deals funded 100%… the seller is only one option.
Jim, what sorts of income/equity splits are customary in setups like what you described? I’m planning my first deal to involve equity from a number of people I already know. I’m planning to put in around $50,000, raise $150,000, and get the rest from the bank, to get a park in the $500,000-$750,000 range. Some/all of the other investors might be cosigning the personal guarantee on the loan as well.I come from the world of dealing with hedge funds and private equity; terms vary but generally are along the lines of 2% of net assets per year charged as a “management fee” and 20% of income taken as carried interest (with all of the tax attributes passing along as well). With private equity sometimes that 20% becomes calculated in a more complicated manner in a “waterfall.” Are customary terms in parks similar?