Diary of an Apartment Investor
I'm Brian Briscoe - the host of this podcast. One of my passions is helping people learn how to build a profitable apartment investing business and this podcast is just the launching point!!
I interview people in various stages - from the aspiring to the experienced - to help you understand what to do at various phases of the journey.
I also do solo episodes where I pack each episode full of actionable advice... Some people promise "no fluff' but I actually deliver in these episodes...
I also bring on a handful of coaching clients each month and personally walk them through what it takes to build the apartment investing business of their dreams...
Connect with me on LinkedIn to continue the conversation: https://www.linkedin.com/in/brian-briscoe-ut/
Diary of an Apartment Investor
MFB - Structuring your Deal
Various tools to use when structuring your deal, to include preferred returns, waterfalls, and a GP catch-up. We also review the capital stack, which is also a significant part of structuring the deal.
Examples from the podcast:
Example 1: The 80/20 split. Let's assume there is $1m in equity and $200k in profits to distribute at sale. The investors share is 80% of $200k which is $160k and the GP share is $40k. Very straight forward, it's just a flat percentage.
----
Example 2: The preferred return. Let's assume there's a 6% preferred return on an investment with $1m in equity. After the preferred return is paid, the remaining funds are split 70/30. Assuming the same $200k in profits to distribute.
The investors get 100% of the preferred return paid out, which is $60k (6% of $1m).
The investors then get 70% of the remaining $140k, which is $98k for a total of $158k.
The GP gets 30% of what's leftover after the pref, which is $42k.
----
Example 3: The GP catch-up. Same $1m in equity, same $200k in profits. In this case, let's assume a 10% preferred return with a catch-up that pays the GP up to $50k. After that, there's a 60/40 LP/GP split.
First $100k is paid to the LPs or passive investors as their preferred return.
Next $50k is paid to the GPs as their catch-up.
Final $50k is distributed with $30k going to LP or passive investors and $20k going to GP.
LPs get $130k and GPs get $70k.
---
Example 4: The waterfall. Same $1m in equity, same $200k in profits. Here's how this particular deal is set up.
Tier 1: 5% preferred return.
Tier 2: 80/20 split up to a 10% hurdle - meaning until the investors receive a 10% return.
Tier 3: 70/30 split up to a 15% hurdle
Tier 4: 50/50 split after 15%
In the case,
Tier 1: the first $50k is paid out to the LP.
Tier 2: $50k goes to LP and GP gets $12.500.
Tier 3: $50k goes to LP and GP gets $21,428.
Tier 4: $8035 goes to LP and $8035 goes to GP
Total paid out: $158k to LP and $42k to GP, but the GP gets 50% of every dollar above $200k.
Originally aired on Dec. 09, 2020
----
Your host, Brian Briscoe, is a co-founder and principal in the real estate investing firm Four Oaks Capital. He and his team currently have 250 units worth $12 million in assets under management and are continuing to grow. He will retire as a Lieutenant Colonel in the United States Marine Corps in 2021. Learn more about him and the Four Oaks team at www.fouroakscapital.com or contact him at brianbriscoe@fouroakscapital.com - be sure to let him know where you found him.
Connect with him on LinkedIn, Facebook, or on Instagram at @diary_of_an_apartment_investor