Multifamily Real Estate Investing – Debt vs Equity Deals

Your deal will either be structured as a debt partnership or an equity partnership. Debt partnerships are the cheapest way to fund your deals: you offer a certain interest rate as a return on their investment that is secured by real estate.

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Let’s say Joe and Mary Smith decide to invest $100,000 in your deal. You offered them a 10 percent return on their money. They would get 10 percent per year in simple interest on the money they invested. I suggest you use simple interest and not compounded interest. If it compounds, you will pay them a lot more money over time. This is the cheapest way to fund your deals because you get all the equity in a deal. You can sometimes go one step further and add a provision that states the interest will be paid only at the time of refinance or resale. Doing this means you can avoid paying monthly interest. Remember that cashflow is king in our business. I would rather put off making payments until later so I can preserve my cash flow, even if I had to offer a slightly higher interest rate.

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Equity partnerships are the other form of partnership you might form. This is the fastest way to fund your deals, because you’re giving up part of that precious equity. Not only will your partners get monthly cash flow, but they’ll share in any profits at the resale of the property. Equity partners typically get between 50 and 75 percent of the deal. Does that sound high? Keep in mind that they’re putting up the money for the deal (not to mention your acquisition fee). I discovered a long time ago that my getting a 25 or 50 percent share of something is a whole lot better than my keeping 100 percent of nothing.

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One excellent way to find people…

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Read the full blog post here: https://connormccarl.com/debt-vs-equity-deals/

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Watch the video here: https://youtu.be/Ohl815Ntnvw?si=yDYYiMA3icOZEImU

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