A structured real estate deal or structured finance involves highly complex financial transactions offered by many large financial institutions for companies with very unique financing needs. The investor must have a handsome amount of money for completing structured real estate deal. Similarly he must understand all industry terms related to structured real estate deal.
First of all never get into a deal with partners without having a formalized real estate partnership agreement. If you don’t take the time to work up a formalized agreement and purchase a property with partners, you can get yourself into some real trouble. Make sure you consider the following things in putting this real estate partnership document together.
- Who is putting up funds and how much are they giving?
- What is the percentage split of funds?
- Who will be actively managing the property?
- What will each partner’s role be in the day to day care of the property? (consider little things like who wants to be woken up at 3 AM if the is a problem with the property)
- Who will be on title?
- Who will apply for the loan?
- How will expenses be covered?
- How will any monthly profits be split?
- If sold, how will the proceeds be split?
Break things down even further and have a clear understanding of all roles of all parties. When you have figured out the roles and amounts of money that are put up for the deal, negotiate a fair balance between these to come up with percentage splits in profits, proceeds, ownership, etc. Write these down in the partnership agreement. Once you’ve completed the document, pay the extra money and have an attorney review it to be sure both parties are protected. Then should you move forward with a deal with partners.
Some business terms related to structured real estate deal is
Sponsor: The company or individual who is looking to raise money and has identified the real estate to be purchased or improved.
Investor: The money partner, sometimes an individual, sometimes a company, (private equity group) who is putting up the cash above and beyond leveraged or bank money. However, if 100% of the money needed to complete the project is debt, then the term investor might be used to describe the lender or debt partner.
Lender/Debt partner: The institution putting up the loan.
Structured Financial Transaction: Any deal structure where debt and equity are both used together to finance a deal.