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Nick Phillips
  • Rental Property Investor
  • Kansas City, MO
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Initial strategy - Finding a Partner, Turnkey vs BRRRR, SFR/MF

Nick Phillips
  • Rental Property Investor
  • Kansas City, MO
Posted Nov 21 2022, 12:14

Hi All, Looking to get some advice on an initial strategy.  Sorry in advance for the long post! 

First a quick background on me, I've had a triplex in the past (2006-2016). Started out as a house hack, then moved away out of state and did quite a bit of work on it. Learned a lot with tenants, repairs ,etc. Ended up paying way too much for it, bad neighborhood, lots of trouble with PMs, you name it.  Took a break from RE and now looking to get back into it with more knowledge this time. 

I've read several of the BP books. The Multi-family books, creative financing, BRRRR, etc. The BRRRR strategy makes a lot of sense to me. Back in 2006, other books just called it value add investing and forced appreciation. I feel this is the best goal for me and my style of investing. I'm not afraid of rehabs having gone through it before. Being able to force appreciation into a property to get equity, refinance at the new value and bring in renters seems like an excellent "exit" strategy. Turn the property over to a PM and keep building your business. My end goal would be to do this on MF properties however I feel more nervous doing this on a multi-family property than a single family. I really want to do Brandon Turner's "Stack" method - e.g. doubling the number of units with each purchase.

While this sounds great on paper, I'm seeing a lot of risk right now: 

1. Higher interest rates: I keep running numbers on properties and they just don't cash flow or the margins are really slim. Even though I'm accounting for vacancy at 5%, if I move ahead and purchase a vacant unit and the unit sits empty for a month or two, the calculations are blown out of the water.  

2. Falling prices: Lots of areas are seeing price declines. Even though I wouldn't be looking to sell, this would affect the LTV that a lender would look at. Say after a rehab in 3-5 months and prices fall another 20%, I might not be able to refinance and cash flow.

3. Running a rehab: Having gone through a rehab before, I feel fairly confident I can do it again.  The part that would worry me, is my lack of time. Having a young family and demanding job. I don't want to spread myself too thin.  

4. MF Construction at 30+ year high - This will create a pretty big supply of Class A rental apartments and also developers are selling SF build to rent communities rather than direct to consumer.  I'm not sure how this will affect the rental market next year but it's on my mind.  

While there are risks right now, I'm still looking to push forward cautiously and not blindly. If I purchased a turnkey property, yes I would avoid the management and risks of a rehab but I would not get forced equity (or would I?). I would have cash invested in the deal that would stay there. One thing I am seeing is rehabbed projects are flooding the market and flippers are selling for a loss.  Also, I'm reading a few startups are getting out of the flipping game (Zillow, OpenDoor, etc)

I've seen this written in several ways. You need the following for investing to work: 

1. Hustle/Time

2. Money

3. Knowledge 

Of these, I feel I have some knowledge of real estate having done a project already and held for 10 years. For the Hustle portion, I'm not afraid to hustle and work hard. However, I currently need to devote that outside of real estate until I can replace my primary income with real estate. This is my end goal. 

So with me not having much time, and having some knowledge, I feel limited to only doing turnkey properties where I can just buy and put a PM in place.  I don't really like this option for several reasons as I stated above. Also, I would run out of capital really quickly.  

The money portion I have been asking around to see if others would be interested in partnering in deals. A few of my contacts are just low on cash right now due to the stock market decline.  I also don't feel super confident right now and would rather use my own money to build confidence and gain more experience. My number one goal with having investors would be preservation of funds and then return on capital.  

Then it dawned on me, what If I provided the down payment/cash for deals and found an experienced partner that could do the hustle?  I have the opportunity to greatly increase my income (outside of real estate). 

Would love to hear everyone's thoughts on bringing in a partner to help with the time portion and to also bring knowledge/experience.  I have several questions on this: 

1. What equity split would you do in this setup?  50/50?  60/40 (cash/hustle)?

2. How would you set up the partnership? Per project? I found TribeVest which would set up the LLC. How would you ensure each party would have ownership interest in the property (keeping everyone honest)

3. Should I only find a partner in my local market? I would like to walk the properties I'm investing in while not required to do so but would be nice to have the local feeling. 

4. Would you do multiple projects with the same partner or spread with multiple partners to de-risk all the investments?  

Any advice would be greatly appreciated and any thoughts thinking outside the box here too! I really enjoy the community here and how helpful everyone is.  


Thanks,

Nick

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Nicholas L.
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#1 Starting Out Contributor
  • Flipper/Rehabber
  • Pittsburgh
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Nicholas L.
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#1 Starting Out Contributor
  • Flipper/Rehabber
  • Pittsburgh
Replied Nov 21 2022, 13:35

@Nick Phillips

I think you nailed all the difficulties of BRRRR.

But I'm not sure I fully understand what you're looking for in "an experienced partner that could do the hustle."

You're saying... you'd fund projects, and they'd manage them?  Couldn't a reputable GC do that?  What are you hoping to accomplish?

Partnering is risky too... everything in RE is risky and it sounds like you have a strong understanding of the market.

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Nick Phillips
  • Rental Property Investor
  • Kansas City, MO
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Nick Phillips
  • Rental Property Investor
  • Kansas City, MO
Replied Nov 21 2022, 17:53
Quote from @Nicholas L.:

@Nick Phillips

I think you nailed all the difficulties of BRRRR.

But I'm not sure I fully understand what you're looking for in "an experienced partner that could do the hustle."

You're saying... you'd fund projects, and they'd manage them?  Couldn't a reputable GC do that?  What are you hoping to accomplish?

Partnering is risky too... everything in RE is risky and it sounds like you have a strong understanding of the market.

I do think a GC could manage it yes. I’m curious if a partner that has done this a few times recently would be more helpful though. They could be finding the properties, running initial numbers, inspecting properties, connecting with GCs to find good ones, etc. I would hope they would help with all the leg work involved. 
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Nathan Gesner
  • Real Estate Broker
  • Cody, WY
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Nathan Gesner
  • Real Estate Broker
  • Cody, WY
ModeratorReplied Nov 22 2022, 05:21
Quote from @Nick Phillips:

You've got a lot going on here, so I'll keep it short and generic.

Today's market is tough for everyone, not just you. Prices increased so quickly and so dramatically that the numbers don't work like they used to. You'll just have to be patient and keep looking.

As for partnering with others, my recommendation is that you find a local investor group and start building relationships. This will help answer a lot of your questions and gives you a place to look for someone reliable enough to partner with.

Go to NETWORK at the top of your screen and you can search for other investors and investment groups in your area. You can also check meetup.com or search facebook for real estate investment groups, clubs, or meetings in your area.

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Nicholas L.
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  • Flipper/Rehabber
  • Pittsburgh
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Nicholas L.
Pro Member
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  • Flipper/Rehabber
  • Pittsburgh
Replied Nov 22 2022, 10:51

@Nick Phillips

OK - just to be blunt with you - that's a lot for the partner to do. And I worry whenever the newer person in a partnership is the money partner. Usually you want it the other way around. Paying someone else to do a BRRRR for you on your behalf just so you can hope to get all your cash back in 6-12 months is risky.

I'm just getting started on a BRRRR right now myself, and it's a lot of work even to get it off the ground. Contractors are extraordinarily busy, good deals are tough to find, and interest rates have made the refi part even more difficult as you correctly noted in your first post.