The purchase price is approximately $400,000 with a 300,000 mortgate, 25 years at 5.75%. This works out to yearly payments of approx. $23,000 on the mortgage.
The person putting this deal together has budgeted 3% of revenues for reserves (that’s approx. $2,000). I agree that this seems potentially unrealistic.
The 8% return would be cumulative (but simple). In my current counter-offer, I proposed 12% simple cumulative, with a 12% or 13% compounded catch-up.
4.In the current proposal, the management fee would come before my preferred return. However, the $45k number I gave for NOI does not include the mgmt fee (since it’s an open question whether it should come above or below that line). Thanks.
I have been offered the chance to participate in a real estate deal (7 residential units, and 2commercial units in the building). I would put in 90% of the equity. NOI is approximately $45,000.
The terms I was offered were 8% preferred return, 50% of excess cash flow, with 8% management fee off revenues (approx. $70,000).
Any thoughts on an appropriate (i.e., non-insulting) counter-offer? Thanks in advance for your time.
Posted by RobH_WA on September 30, 2003 at 10:57:08:
Maybe others can answer you directly, I would prefer to know some more before offering my 2 cents:
What is the valuation?
If there is a loan, what are the terms of that loan?
What agreement covers reserves for, and decisions on, implementation of any capital expenditure? This will have a critical impact on any excess cash flow.