I was hoping to get some feedback on a proposal. I'm in early talks with a friend who has experience in the hotel industry. He is in the process of evaluating a property in a "destination" market for purchase. I won't get into too many of the particulars, but I have a specific question. His proposal is that he will be awarded 51% of the ownership of the property based on sweat equity and a "finder's fee" while those investing capital will collectively own 49%.
I wanted to know if this seemed normal? I have a couple concerns. Without investing capital, what incentive, besides collecting distributions, does he have to make this successful? It seems that regardless of whether the property increases in value or not, he will come out ahead after the initial work put in. With a proposed investment of over $1M for 49%, the initial effort will net him at least this much, given the 49/51 split. It seems like a pretty good deal for him for a few months work in setting up the proposal. On top of that, he would be managing the hotel for a salary.
He's willing to impose certain restrictions on the sale of the property for the first few years and he will take a reduced distribution in these years as well.
This would be my first real estate investment and I don't know what industry standard is, but does this seem like a reasonable venture?
Thanks
I wanted to know if this seemed normal? I have a couple concerns. Without investing capital, what incentive, besides collecting distributions, does he have to make this successful? It seems that regardless of whether the property increases in value or not, he will come out ahead after the initial work put in. With a proposed investment of over $1M for 49%, the initial effort will net him at least this much, given the 49/51 split. It seems like a pretty good deal for him for a few months work in setting up the proposal. On top of that, he would be managing the hotel for a salary.
He's willing to impose certain restrictions on the sale of the property for the first few years and he will take a reduced distribution in these years as well.
This would be my first real estate investment and I don't know what industry standard is, but does this seem like a reasonable venture?
Thanks
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