BiggerPockets

I have had numerous people around me interested in investing, but do not want to do it alone (no experience). While I am no guru by any means, I know a lot more than the average person. I am seeing potential opportunities here to partner with people...

Right now I am all buy and hold. No flips or anything. I would love to try to get a silent, cash partner who basically funds the purchase (just a down payment) and pays closings cost, etc. I would manage the property (I am already a property manager). I would like to split ownership 50/50 and have a plan that in 5 years we would have some kind of exit strategy (sell, keep, etc). We would split costs (repairs) 50/50?

My question is, how have you guys partnered on these kind of deals in the past? We would be doing a SFH up to an 8-plex. My goal is to get into a property for 0 down. Being young, I am ok managing it and doing the "dirty" work. I assume a good option would be to open up a new LLC for our venture. Any helpful info would be much appreciated!

50/50 split seems a little steep to me. When you look at a typical hedge fund it is an 80/20 split. With those that put up the money gettting 80%.

Why not do a deal like that and get paid for property management at 10% before thet 80/20 split?

Also if you are planning on getting mortgages not sure if you are thinking fnma mortgages where it would need to be in the investor's personal name.

Just seemed to me that 50/50 split wouldn't be all that appealing. What kind of return are able to deliver for an investor?
What does a typical acquisition cost vs value and rental income vs expenses look like.

You would have to work pretty hard or go really big to find buy and hold deals that cash flowed enough to be diluted amongst more than one investor...I would think.

Leo I'm in the same boat as you at the moment. I have ten properties, and many people around me that want to invest in real estate, but they don't want the hassle of dealing with tenants, nor the re-hab, and day to day operation. I think you're going down the right path, because that's the same plan I'm pitching to my investors. They put up the 20% down, and we split the rent 50/50. The part of the deal that makes it attractive for the partner, is I pay the rehab cost, I manage the day to day operations, I collect the rents, pay the taxes, etc. That's very appealing to people who have a little cash, want to invest in real estate, but don't want to deal with everything else that comes with it.

Investors I've spoken to love the fact that they can park their money somewhere that relatively safe, and get a monthly return. Most people not familiar with the ins and outs of real estate investing just want to get a little better return every month that beats the bank, along with some tax advantages. I trying to draw up a partnership agreement now that spells all of that out. My investors were very receptive to leveraging my time and knowledge to get a return. I have capital to purchase a property all cash, then get a return from the investor, place the property in an LLC, and take a loan out on the property with a local bank, with me being the personal signer. This way the partner doesn't have to go through the "approval" process with the bank. Good luck.

Originally posted by Thomas Williamson:
Leo I'm in the same boat as you at the moment. I have ten properties, and many people around me that want to invest in real estate, but they don't want the hassle of dealing with tenants, nor the re-hab, and day to day operation. I think you're going down the right path, because that's the same plan I'm pitching to my investors. They put up the 20% down, and we split the rent 50/50. The part of the deal that makes it attractive for the partner, is I pay the rehab cost, I manage the day to day operations, I collect the rents, pay the taxes, etc. That's very appealing to people who have a little cash, want to invest in real estate, but don't want to deal with everything else that comes with it.

Investors I've spoken to love the fact that they can park their money somewhere that relatively safe, and get a monthly return. Most people not familiar with the ins and outs of real estate investing just want to get a little better return every month that beats the bank, along with some tax advantages. I trying to draw up a partnership agreement now that spells all of that out. My investors were very receptive to leveraging my time and knowledge to get a return. I have capital to purchase a property all cash, then get a return from the investor, place the property in an LLC, and take a loan out on the property with a local bank, with me being the personal signer. This way the partner doesn't have to go through the "approval" process with the bank. Good luck.

Thomas, thanks for that. It was very helpful!

Question, how much equity do you own of the property if you are putting nothing down? Initially I was thinking split equity 50/50, but after hearing people on here (and after thinking more), that might not be doable. When repairs come up, do you two split the cost 50/50? I guess ideally there would be some money in the LLC account to cover extra costs. Also, do you charge 8-10% management fees? What kind of properties are you looking to partner with? SFH, duplex or larger?

Thanks everyone for the helpful info! :)

In my deals, equity investor gets a preferred return annually. After the preferred return is reached, we split 50/50. At time of sale, equity partner gets their initial investment back and we split the sales proceeds 50/50. Hope this helps!

Originally posted by Leo Cao:
Would be very helpful if anyone that did such equity-labor deals can do a numbers rundow, real or hypothetical.

Say 30k purchase price, 30k hard+soft renov costs, market value 80k at completion, successfully rented at 1k/month.

Intent as a buy and hold, how would this kind of deal exit? How is the title held?
Essentially what convention of a split makes it worthwhile for both the money and equity partner and appropriately manage risks.

great question, highly interested in the answer

Zac I'll send a PM with more details.

Bill I'm not sure your response was meant for me, or you meant to respond to someone else. Obviously every situation is different, and I guess I look at things a little differently. I think starting out (with OPM) sometimes you have to be willing to give up some returns, and work a little harder, in order to be even more successful in the future. As the old saying goes, I'd rather own 50% of something than 100% of nothing. I'm willing to let the investors get a larger share starting out, mainly because I want to attract more and more investors by word of mouth. I literally just had a conversation with my first investor (co-worker) and she said, "My husband and I love what your doing, and someday we would love to do it ourselves, but it's nice to give you the 20% down and not have to do all the work." Me personally, I'll take that deal all day long right now. I've got all of my systems down, and I manage to keep my tenants long term, so really, it's not that big of a hassle for me. This way I can keep acquiring more inventory. The market is starting to get tight in Atlanta right now.

Someday when I'm more established with a long term track record, then I can charge more of a premium to invest with me. I recently attended a syndication seminar in Los Angeles with Sam Freshman. He too recommended the same strategy when your just starting out. I love that real estate allows you to just be creative. Good points though.

Thomas, I do remember starting out and egar to agree to things I'd never do now, my thought was that your deals might be longer terms, 3, 5, 7, 15 years, as you obtain more business you'll have anchors dragging yo in less profitable deals that you got involved with. But, if you are willing, by all means, have at it! Keep exits for yourself, like having your partner seller finance thier interest or just have sale option points along the way.... :)

Frank, I'm familiar with the Texas Series LLC and I almost opened one for Texas properties. I do like the concept, but it's not the same as individual LLCs. Accounting is consolidated, management functions and maintenance of the LLC, minutes, authorizations, etc are under one umbrella as opposed to having to address seperate maintenance issues of the enties. In some states, forming an LLC is not cheap, other states have ongoing fees and filing requirements, not only is it a pain, it can be expensive to have a string of seperate entities.

The lack of maintenance and attention to operations is the number one way to lose the liability protection offered. If the liability protection is lost, you become personally liable and at that point your ownership of all other LLCs becomes a target, not the properties inside those LLCs so much as the value of the company, then, in turn, liquidation may be necessary or required. So, they can come in the backdoor eventually.

Please allow me to summon or resident expert on finding threads on BP, @Steve Babiak! There was a thread where John Chapman chimed in on these LLC issues.

The ones that make out with 10 LLCs for 10 properties are the attorneys and accountants, your insurance agent will like it too, with a seperate policy on each house instead of having a cheaper umbrella policy on 10 properties.

As to partnerships, getting back on topic, you can devise any standard LLC to operate as a Series LLC, with the cell concept through the Operating Agreement amongst partners, having buy sell agreements, options, gurantees between partners and lending arrangements. While such arrangements are not as bullet proof as a court acting in a matter with a Series LLC, if you have strong enough partners to back up guarantees and they are insured, you should be fine.

If we are getting off point perhaps we should start another thread on LLCs.

I'd still suggest you consider your management aspects and charge for the efforts and then address the sharing of equities. :)