Investing with Partners

[Collin Etherton]

My mentor at my 9-5 job and I found a great off market deal for a rental property. We have renters lined up, but I have questions about the logistics of the deal. We estimate the sale price to be $120,000. He wants to put $60k down himself, and I will hold my $10k and then use it to renovate the property before renting it out. The rental income will be $2034/month, and our estimated payment is $575/month. Since I am paying for materials, doing the labor, and managing the property, he proposed that I will receive a quarterly dividend check that will equate to 33% of the net income even though I am only providing 16.67% of the capital that he is providing. 

My questions are:

1. Is this a good way to dive into real estate, or would I be better off using my 10k to house hack something on my own? 

2. If this is a good deal for me, is there a better way to finance the deal? 

Thanks!

Collin

[Dan Dempsey]

Are you getting an equity position of 33% as well? If you are, I'd say that's a pretty decent deal but there's a lot of other unknowns to hammer out. How long will you hold the property? What happens when you sell and who decides when that happens? How are decisions made? Who is paying for maintenance/ cap ex down the road? Is this an LLC? I think you have a lot more details to figure out on how the partnership would work. If you aren't getting any equity than this is not a good deal in my opinion.

[Charles Carillo]

@Collin Etherton

Does your 9-5 mentor have any experience in real estate investing? Is there a reason he wants to put down 50% on the property? Is this what your bank is requiring? Are you able to renovate the property for $10k? Do you have any reserves for issues and future repairs etc.? Honestly, it would be cleaner for both of you for your mentor to purchase the property 100% themselves and then just hire you as a handyman/property manager.

[Nathan Gesner]

Sit down and crunch the numbers. What will you earn as a rental? What will you earn if you sell in five years? Three years? If you put in 17% of the money and get 33% of the return, that's a pretty sweet deal. But it all depends on what the rest of the numbers look like. Get your agreement in writing and review it carefully.

[Collin Etherton]

Thank you all, everyone was helpful. What I am hearing is that as long as I get 33% equity, and my partner and I agree on the other terms, this should be a good deal. 

[Eliott Elias]

Decent deal, more than anything you will gain experience and will be able to better maneuver through your next deal. Partner with people who are better than you, that experience is invaluable    

[Nicholas L.]

@Collin Etherton

i'd house hack

otherwise you're just burning your 10k in someone else's deal, even though sure, you might have some equity

no reason to partner on something small like this

[River Sava]

Hi Collin- have you looked into DSCR loans?

[Andy Algreen]

I agree with about everyone on this post, highly agree with Eliott. The quickest way to learn is by taking action. If your partner is experienced in investing, you feel like you can learn from him, and can trust him, I'd say go for it. Obviously, a lot of other facts to consider as everyone has pointed out and need to be addressed, but overall it doesn't seem like a "bad" deal ("good" / "bad"...all perspective).