Financing a deal with a partner

Dean Moriarty · 2011-07-13T13:39:38-07:00

I am working on my first real estate deal and the plan is for me to finance 100% of the purchase, and my partner will manage the rest. The deal is pretty good, a couple that is willing to sell their house for the loan balance and keep the loan in their name. My partner and I will rent it out as rent-to-own, expecting to net about $30K when it gets purchased 2 years from now. The money we need to put down is $5K, which I'll pay. The work will all be done by my partner, but he will not be putting any money down. My question is, is this normal? I'm happy with the returns, but it seems strange to me because if I'm the only one putting money in, then I'm the only one incurring risk, right? Also, if we don't rent it out right away and we have to pay out of pocket for the mortgage, would it be me paying it, or should we split it? I'm just getting into this, so I'm using this as a learning experience so I don't mind taking on a little more risk, but I don't want to get screwed either. What other things should I be thinking about?

Rusty Thompson

Real Estate Investor · Salem, OR · Member since 2011 · 422 posts · 149 votes

15y

Owner Financing is not always a good deal.. but that aside, I think if your fronting the money & he is doing the work than a 50/50 is fair (consider you return on investment, hard money would charge 10-15%).... You could always put in a stipulation that he is responsible for expenses up to the $5k initial investment... but at that point would you not then be liable for half the work. At the end of the day fare is in the eye of the beholder

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Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

15y

Better get it all hashed out ahead of time - real estate partnerships that are not well thought out or entered into by inexperienced investors almost always end in problems with both parties feeling taken advantage of.

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Roy S.

Cincinnati · Member since 2011 · 77 posts · 16 votes

15y

Like you said, if you don't rent it out right away, who pays?

Who pays for marketing the place for rent?

If the furnace goes out, who pays? Ditto for other repairs.

If one of you decides to move to Hawaii or wants out for some other reason, what happens?

If you sell for a loss in two years, is that still a 50/50 split?

If the new buyers decide not to buy in two years, and you can't find any buyers at all, what happens?

Who gets to deduct the depreciation (I think you can also split this 50/50 if you want)

What if one of you goes bankrupt?

What if one wants to do X and the other disagrees? Who gets the deciding vote?

I don't mean to discourage you. I just agree with Don that all this needs to be hashed out ahead of time. In my first deal there were 8 of us and it all worked out ok, so it can happen :)

Good luck!

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Chris Weiler

Flipper/Rehabber · Anaheim, CA · Member since 2010 · 188 posts · 118 votes

15y

I have a similar relationship with my business partner. I provide the capital and he provides the sweat equity. I am very happy with the partnership because of the tough discussions and arrangements we made before we purchased our first property. I would recommend talking with a decent real estate lawyer and drafting an operating agreement. It is not as expensive as you think and is well worth the money. A strong operating agreement will set expectations and will determine what to do in just about any scenario. It is much easier to develop a strong trust between partners if you know what to expect from each other at all times.

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Financing a deal with a partner

Financing a deal with a partner

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