One very powerful aspect of investing in multi-family is you become the owner income property. The property produces income from rents and after expenses there is a net operating income This means you can attract investors who are happy to place their money with you in exchange for a rate of return.
In financing your acquisition of the property you can attract banks who are happy to loan you a purchase money mortgage up to a certain loan to value. For the remaining cash requirements of the purchase, like down payment and closing costs, you can arrange with a private lender or investor to provide the amount you need in exchange for a higher than market rate of return, and possibly a piece of the equity of the property. Another alternative is to partner with an investor, where they provide the cash and credit, while you provide the time, effort and legwork.
The key to making a multi-family transaction work is to recognize that it is “you” who is in control, not the private lender, and if you have a partnership to structure the transaction so that you exert all control over operating decisions, not the investor.
You can structure the deal as a limited partnership, where the investors are limited partners with ownership, but no operational control. Or, you can structure the deal in an Limited Liability Company where the property is the single asset owned by the LLC. In this case the investors can wither own a small non-controlling portion of the stock, or you can give them a lien against some of your stock to secure a Promissory Note. There are many possibilities.
Your overall play when taking on investors and/or bank financing is to buy the property, improve the property and thereby raise the value, and then refinance the property, at which time you pay off the acquisition lender and private lenders/investors/partners.
When they enter into the transaction with you, they don’t have a position that allows them any decision making power, so they don’t get to decide whether you stay in the deal long term or not. This is your transaction where you are pulling the strings, so it is in fact you who decides whether they stay in the transaction and for how long.
If the deal is an apartment building with value plays, like rehab and quite a few vacancies, it could be two to three years before all of the work is done and all of the vacant units are leased and the property is operating at full occupancy. After this is complete though, you can then focus on refinancing and paying off you lender and investors. After this you own the property 100% and investors and partners have no further involvement.
Investors and money partners are attracted to your deals by the high rates of return you can offer them. Don’t forget though, it is you who is in control. You have the wealth producer, the property. They have the commodity, capital, that needs to grow if it is to be of any use to them.