| The word "investor" is quite a general term that | | | | meeting of the two objectives and this is where you |
| means different things to different people. defines an | | | | get down to their investor profile. You want to |
| investor as "someone who commits capital in order | | | | match your multifamily investment product to their |
| to gain financial returns". So what does this mean in | | | | profile. |
| terms of multifamily apartment investing? There are | | | | The documentation for the type of investor will vary. |
| three types of investors: lending, equity and hybrid | | | | This is in reference to once they have committed to |
| (or combination). Here is a breakdown of these three | | | | the multifamily apartment deal and the documents |
| types of investors. | | | | that you will put up to define the transaction and to |
| A lending investor is someone who will loan you | | | | create the promissory note and security instrument. |
| money on a real estate deal. You will pay them an | | | | This will be easier with a lending investor. |
| interest rate and you retain 100% ownership of the | | | | All three of these types of investors have merit. As |
| property. You will pay them back on certain terms at | | | | a general rule, lending investors are preferred |
| a certain time. | | | | because you do not have to pay as much return. |
| An equity investor is someone who will give you the | | | | Equity investors are going to end up costing you |
| money but they want a percent ownership in the | | | | more money but they may have the benefit of not |
| property. In return, they get a percentage of the | | | | needing any monthly cash flow. |
| cash flow and a percentage of the appreciation. They | | | | One type of investor is not necessarily better than |
| are going to cost you more money but they may | | | | another. It really is dependent on what suits your |
| have some other benefits such as not requiring any | | | | investng needs at that point in time. Generally |
| monthly cash flow. | | | | speaking, you will pay less return with a lending |
| A Hybrid or combination investor is someone who | | | | investor. |
| can receive an interest rate and equity participation in | | | | Knowing what investor you need to deal with on a |
| the project. | | | | project is very important. If you know the type of |
| From the investor's point of view, whether they | | | | investor you are dealing with then you will know how |
| choose to be a lending, equity or hybrid investor | | | | to "package" the product. You will be able to |
| depends on their investing needs. We are talking | | | | determine how to match your multifamily apartment |
| about mutual needs. Do they need monthly income | | | | investment product to their needs and meet your |
| or do they desire something for the future? It is a | | | | needs as well. |