I currently own two investment properties in the Bay Area. I would like to sell one, which I own outright, and use the cash for down-payments on several more investment properties. I have an 800+ credit score, but limited income. I've been talking with folks about the prospect of partnering up -- I put in the down-payment money (or most of it) -- and they help me/us qualify for the mortgages necessary to purchase the additional investment properties.
However I'm unsure how to structure the partnership, in terms of splitting cash flow / appreciation / etc. Thoughts appreciated!
Hey @D lux,
You can pretty much structure this partnership any way you like as long as you and your partner agree to the terms (e.g. how to split cash flow, appreciation, etc). If you are literally bring all the cash and they are just a vehicle by which you may obtain a conventional mortgage you should get the majority of the proceeds. Make sure you build into the partnership that you will revisit every few years in terms of exit strategy. Specifically, make sure you schedule re-examination of the deal to determine if you hold or sell. Are you planning to do a 1031 exchange out of one of your current properties and into these new ones?
But let me ask you this. are you certain you can't get a loan on your own? Have you spoken to investor friendly mortgage brokers and not just traditional lenders like Wells Fargo, BofA, etc? Ping me via PM if you like. Depending on your situation and pending more info I may know some folks who can help you achieve your goals.
Jeff is right on the money. Partnerships that own real estate are considered completely separate taxpaying entities. Investors must not forget that they do not own the real estate as an individual. They actually own an interest in a partnership and the partnership actually owns the real estate. When the sale of real estate is contemplated, the partnership is the taxpaying entity that is selling the real estate (not the individuals), so unless any changes are made, the partnership must stay together and structure the 1031 Exchange transaction. There are other options, but most require some advanced planning, so Jeff is right on the money in that you should revisit your exit strategy very couple of years to make sure that you have time to plan for a 1031 Exchange.
Both Jeff and Bill are correct. Looks like you are at a cross road like I was 3 years ago. I still have partners on my 9 buy-and-hold deals in SJ. Like they said, 50% of something is better than 100% of nothing. When you hold title of the property, be sure to hold them as Tenants in Common, not Joint Tenants.
There are a boat load of people/investors in SF making a ton of money. You shouldn't have any issues finding a partner to help you qualify for the loans IMO. Since you're in SF, reach out to @Johnson H. and pick his brain. If he can't help, reach out to @Jeff Pollack . See how generous am I with other people's time?
Best of luck.
@Dominic L. is the leading authority on the subject and will be up in San Francisco in about a week and a half if you want to hear more about it..
@Minh Le - Thanks for being generous with my time, especially when I am the one with the full time job!
Like others have said, you can arrange this partnership anyway you want. It just depends on how much each party values not just qualifying for the loan but being liable for the loan as well. If the investment goes south, the name on the mortgage will be the one that either needs to keep paying the loan or walk away from it damaging their credit. Good luck and let us know how your partnership works out!
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