How to Structure Real Estate Deals

By Michael Shenouda

After posting my first blog about "How I got started in real estate", I wanted to continue by giving some advice on a few different ways to structure deals when you are getting started.  There are many ways to structure a real estate deal and it is all about setting expectations with your partners and/or investors.  

First, you can start the way I did with a FHA 203k loan.  This type of loan is a great way to get in with very little money down.  However, it is HIGHLY leveraged so be careful because with only 3.5% down if things don’t go well, it can turn ugly quickly.   Regardless, there are multiple mortgage brokers out there that can provide these loans and you will only need to put 3.5% of the total purchase price and construction.  This is a great way to start as you will it own it all yourself and if you do well the upside can be a lot higher.

 

Second, you may determine that coming up with any cash is hard but you still want to put in the work, find the deal and manage it.  This is where you can find a family member, friend or ANYONE who wants to invest in real estate.  I promise if you do your homework and find a good deal, there is money out there to do it.  If you can’t find the money, call me and I’ll find it for you.  Once you have found your investor or partner, you can structure the deal several different ways.  The beauty about this is that there is no right or wrong way to do it.  Several ways I have seen:

The beauty about this is that there is no right or wrong way to do it.
  1. Investor puts up the cash, you sign the loan and do all the work and split the profits 50/50 or 75/25 after they have their initial investment returned.
  2. Investor puts up the cash and you pay them interest on their money 10-15% a year and once they have all their initial investment back plus return you keep all the upside.
  3. Investor puts up the money and you pay them interest (ie 8%) plus a percentage of the profits (75-80%) and you keep 20-25%.  This is more standard as you grow larger.

Real estate is a lot of fun because you can be as creative as you want with your deal structure; there is no one size fits all.