Looking for insight
Hello everyone,
This is my first time posting on BiggerPockets. I am a fairly new investor (own only 1 rental) and just came upon a nice deal, but wanted some insight from the more experience investors here.
I found a property for sale for $389K that won’t qualify for financing due to its current condition (it looks like the owner started remodeling, ripped the kitchen and bathroom apart, ripped flooring and didn’t finish). The AVR is approx. $530K. I don’t have the funds to buy this property cash, but a friend of mine is interested in a partnership deal, where he will come up with 70% and I will put in 30% of the purchase price. The rehab money will come from a private lender (family member). Once we rehab the property and refinance to recoup our initial investment (I’d like to turn it into an Airbnb or rent it out), my friend said that the terms will always stay the same 70% / 30%, from any income we get, or if we decide to sell the house. I did mention to him that the split would have to be different since I was the one who found the property and I will be the one doing the legwork to run the Airbnb.
Oh by the way, my friend is an investor and also a realtor.
He already reached out to the realtor with a nice pitch, cash offer and the agent gets to represent both seller and buyer for 100% commission.
My question is, does this sound like a good deal? Would you accept this deal If you were in my shoes? Is there anything I should be concerned about?
Any and all inputs are greatly appreciated 😊
Quote from @Viviane Long:
1. Agents cannot "represent" both sides in a transaction. They are probably representing the Seller and treating you like a customer. Your agent/investor partner should know the difference and it could be significant later on. I'm curious to know why your partner isn't representing you? He's missing out on at least $7,000+ in commission!
2. Splitting based on the percentage of money contributed is easy, but you are correct that there should be some consideration made for the work put in. Some investors charge a fee for finding the deal. I think this is usually a percentage and paid at closing. Then you can negotiate compensation for day-to-day management. That could be an hourly rate, a % of monthly income collected, a flat fee, an increased % upon sale, or whatever you negotiate.
3. At the same time, your deal wouldn't exist if the partner didn't put in the 70% and you are not a professional property manager and shouldn't be paid the same as a pro. Keep that in mind before trying to get too greedy with your numbers.
#4 All Forums Contributor
- Plymouth, MI
Quote from @Viviane Long:Not enough info to tell if this is a good deal or not, but you're correct when you say, "I did mention to him that the split would have to be different since I was the one who found the property and I will be the one doing the legwork to run the Airbnb." The financial side is only a part of what goes into a property's partnership participation. There's a lot more roles and responsibilities both after and before the property goes to closing, than just the money needed.
Hello everyone,
This is my first time posting on BiggerPockets. I am a fairly new investor (own only 1 rental) and just came upon a nice deal, but wanted some insight from the more experience investors here.
I found a property for sale for $389K that won’t qualify for financing due to its current condition (it looks like the owner started remodeling, ripped the kitchen and bathroom apart, ripped flooring and didn’t finish). The AVR is approx. $530K. I don’t have the funds to buy this property cash, but a friend of mine is interested in a partnership deal, where he will come up with 70% and I will put in 30% of the purchase price. The rehab money will come from a private lender (family member). Once we rehab the property and refinance to recoup our initial investment (I’d like to turn it into an Airbnb or rent it out), my friend said that the terms will always stay the same 70% / 30%, from any income we get, or if we decide to sell the house. I did mention to him that the split would have to be different since I was the one who found the property and I will be the one doing the legwork to run the Airbnb.Oh by the way, my friend is an investor and also a realtor.
He already reached out to the realtor with a nice pitch, cash offer and the agent gets to represent both seller and buyer for 100% commission.
My question is, does this sound like a good deal? Would you accept this deal If you were in my shoes? Is there anything I should be concerned about?
Any and all inputs are greatly appreciated 😊
Also, think about this, how do you factor in when you refi and all the original funds are returned, but the mortgage and the rest of the responsibilities continue on?
#2 Starting Out Contributor
- Specialist
- Mendham, NJ
You are doing basically everything wrong in this deal. Why would your partner, a licensed realtor, give up the opportunity for a commission on your side? To get the deal, but that gives the listing agent more of an incentive to push the deal through at any cost. When I buy properties on the MLS, I always take my commission and anyone who asks me to give it up, I put on the blacklist. Your partnership is way too lose. No mismatched percentage partnerships between two people work well, especially when it's cash and you have not commingled cash before. Are you going to put cash into an account to rehab out of? Who decides on the contractors? If you are a new investor and they are a seasoned investor and realtor, they are going to use their providers which may or may not help their business. Why do they need you in the deal? And then on top of that, you want the rehab money to come from a family member, so a third person. This is an absolute disaster waiting to happen.
@Nathan Gesner
Thank you so much for your feedback. As far as your greedy comment, I just want to make sure it’s profitable for the both of us, and that I’m not doing all the legwork for just a couple of hundred dollars a month. And I agree with you, without him, maybe I wouldn’t have this deal. My other alternative is getting the money through a private lender, rehabbing and then refinancing. I made the mistake of locking my money into a CD account last year, and now my funds are unavailable, otherwise I could fund it on my own.
@Joel Villenueve
Thank you for your insight. According to him, we will both be in the loan and the title, 70/30 ownership.
I do have some reservations about having this loan though. That’s why I wanted more insight on this. Thanks again for replying.
@ Jonathan Green
Thank you so much for your feedback.
He’s willing to give up his commission so that we can have a better chance and maybe the other agent will push this deal thru. It was his idea.
The rehab money will be a private lender (trusted family member).
we have already discussed contractors, so far we have 2 we both have worked with in the past.
He doesn’t necessarily need me in the deal, I came to him with this deal, but I was sharing with him how I was thinking of going through a private lender to obtain the funds and that’s when he offered the 70/30 deal. I personally wanted to do this on my own, I even asked if he would be interested in just lending me the money as a private lender, but he’s not interested.
I made the mistake of locking my money into a CD account last year, now my funds won't be available until September, otherwise I could buy it outright and use my HELOC to rehab it.
What suggestions do you have to make this a better deal? Should I pursue this solo with my cash + private lender? I have gotten 3 quotes so far and they’re not too bad.
Thank you again for your honest feedback