{"id":124865,"date":"2020-04-24T05:00:46","date_gmt":"2020-04-24T11:00:46","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=124865"},"modified":"2021-03-16T15:00:09","modified_gmt":"2021-03-16T21:00:09","slug":"real-estate-new-investor-structure-partnership","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/real-estate-new-investor-structure-partnership","title":{"rendered":"Real Estate 101: How to Structure Partnerships as a New Investor"},"content":{"rendered":"<p>In a recent episode of the <a href=\"https:\/\/www.biggerpockets.com\/podcast\" target=\"_blank\" rel=\"noopener noreferrer\">BiggerPockets Podcast<\/a>, a listener wrote in with the following question:<\/p>\n<blockquote><p><em>&#8220;I&#8217;m looking to <a href=\"\/renewsblog\/2013\/04\/09\/how-to-buy-a-small-multifamily-property\/\" target=\"_blank\" rel=\"noopener noreferrer\">buy my first multifamily<\/a>, but I&#8217;m going to have to partner with someone because I don&#8217;t have enough money to put down. How would you structure or propose a deal with a partner to make it mutually beneficial?&#8221;<\/em><\/p><\/blockquote>\n<p>Here&#8217;s how I answered.<\/p>\n<h2>How to Structure Partnerships<\/h2>\n<p><iframe loading=\"lazy\" src=\"https:\/\/www.youtube.com\/embed\/RJNC6wSZJ94\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>First of all, partnerships can really be whatever you want. I mean, there&#8217;s no rule\u2014it doesn&#8217;t have to be this or that.<\/p>\n<p>That said, it&#8217;s got to be beneficial for both people, both people have to agree to it. So, the best partnership is one both people are happy with.<\/p>\n<p>Does that make sense?<\/p>\n<h3>Determine What You Need &amp; What You Can Offer in Return<\/h3>\n<p>Now, I&#8217;ve typically structured my partnerships in that exact situation 50\/50, where one person brings the down payment and the other person brings the deal and takes care of the situation.<\/p>\n<p>If you&#8217;ve got no money, you obviously need to find someone who does. And so I would suggest you find the deal, you put it all together, you manage the difficulties (the paperwork and everything else that you can).<\/p>\n<p>Basically, you want to make it as easy as possible for your investor. It&#8217;s very important that you get this deal done, so you can buy more and more deals down the road. And along the way, you build relationships.<\/p>\n<p>So, you&#8217;re going to need to do a lot of the grunt work. Maybe that even means <a href=\"https:\/\/www.biggerpockets.com\/blog\/2016\/07\/30\/how-to-be-a-landlord\/\" target=\"_blank\" rel=\"noopener noreferrer\">you&#8217;re going to manage the property<\/a>.<\/p>\n<p><em><strong>Related: <\/strong><\/em><a href=\"https:\/\/www.biggerpockets.com\/blog\/build-the-right-team\" target=\"_blank\" rel=\"noopener noreferrer\"><em>How to Build a Real Estate Investing \u201cTeam\u201d With the Skill Sets You Need<\/em><\/a><\/p>\n<p>What happens long-term? I would recommend this.<\/p>\n<h3>Determine How to Split Profits<\/h3>\n<p>What I&#8217;ve done is we split everything 50\/50 down the road. Half of the cash flow goes to you; 50 percent goes to the partner.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-121846 size-main-slider\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/01\/which-strategy-higher-returns-702x336.jpg\" alt=\"Two paths with different heights of coins.\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<p>When we do that in our business with my 50\/50 partners, we typically don&#8217;t take money every month in profit. Otherwise, you know, in a bad month we&#8217;d have to pay in. We add it up over the course of the year, and then we just pay out at the end of the year whatever we made. (And we like to have at least a few thousand-dollar buffer that we leave in there every year\u2014just in case things go bad.)<\/p>\n<p>So, that&#8217;s how we do it. I like 50\/50, because it&#8217;s hard to argue with that.<\/p>\n<p>Could it be 70\/30? Could it be 60\/40? Of course it could be. It&#8217;s whatever you choose to do.<\/p>\n<p>But honestly, if you&#8217;re just getting started in real estate and you&#8217;re trying to do something cool\u2014to build a business and you&#8217;ve got no money\u2014let me tell you this&#8230;<\/p>\n<p>A 99\/1 deal, where you get 1% and somebody else gets 99%, is still better than doing nothing, right? Because if you just can&#8217;t do anything on your own, the most important thing in the beginning is building your knowledge, experience, and confidence.<\/p>\n<p><em><strong>Related:\u00a0<\/strong><\/em><em><a href=\"https:\/\/www.biggerpockets.com\/guides\/ultimate-real-estate-investing-guide\/introduction\" target=\"_blank\" rel=\"noopener noreferrer\">The Ultimate Beginners Guide to Real Estate Investing<\/a><\/em><\/p>\n<p>So again, when I talk about partnerships, a 50\/50 can be great. But if you can&#8217;t find that, it might still be worth it for you to go do all the work for another established investor\u2014just so you can get moving. Just so you can get some momentum going. Later on, you can restructure the profit distribution to earn a bigger share.<\/p>\n<p>You&#8217;re never going to get rich off one property. You get wealthy off a portfolio. And to get a portfolio, you need to build knowledge, experience, and education as you go.<\/p>\n<p>So why not start by proving your value as a partner?<\/p>\n<p>The last point I&#8217;ll make is to be sure to talk with a lawyer about how to make this all legal. There are a lot of ways to do it. You could <a href=\"https:\/\/www.biggerpockets.com\/blog\/purchasing-property-llc-why-how\" target=\"_blank\" rel=\"noopener noreferrer\">form an LLC together<\/a>. You could form a joint venture (JV). There are a lot of different ways you could do this thing.<\/p>\n<p>Talk with an attorney. Just sit down with them. It probably won&#8217;t cost you more than a couple hundred bucks.<\/p>\n<p>Get on the phone with an attorney or get in person with you, your partner, and an attorney, and have them go through a lot of the &#8220;what you want to do in this case&#8221; and &#8220;what you want to do in that case.&#8221; That few hundred dollars you&#8217;ll spend is going to make for a lifetime of easier partnerships.<\/p>\n<p><a href=\"https:\/\/link.chtbl.com\/7t86i-CE\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-124653\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/04\/Rookie-Ad-1-1.jpg\" alt=\"\" width=\"700\" height=\"90\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/04\/Rookie-Ad-1-1.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/04\/Rookie-Ad-1-1-300x39.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>Questions? Comments?<\/em><\/p>\n<p><strong>Let&#8217;s talk below!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>New investors often realize that tackling real estate investments is difficult alone. So, in this video, Brandon Turner shares the basics of investing with a partner. Partnerships can be a great decision\u2014especially when first starting out\u2014to help you grow quicker, diversify risks, split costs, and so much more.<\/p>\n","protected":false},"author":710,"featured_media":116837,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5524],"tags":[],"class_list":["post-124865","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-for-beginners"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/124865","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/710"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=124865"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/124865\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/116837"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=124865"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=124865"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=124865"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}