First time real estate investor

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

6mo

hello and welcome.

obviously i can't speak for this person since i don't know anything about them, but in general i don't recommend that new investors partner, or "split" anything, or do anything creative on their first few deals.

the market is very, very challenging for new investors right now. there's just no other way to say it. anyone who says otherwise is trying to sell something. i am not.

hope this helps

happy to dialogue further on any topic you'd like

i'm on BP to help new investors not lose money

2 Reply

Michael Davis
OP
Lexington, KY · Member since 2019 · 6 posts · 1 vote
6mo
@Nicholas L.

Thank you.

If not for partnering with someone is already an agent and flipping houses to help avoid some of the early pitfalls, what do you suggest for me to get involved in real estate investing?
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Nicholas Cokas

Member since 2021 · 81 posts · 79 votes

6mo

@Michael Davis

Your community is right about the structure, but wrong about the reason. The problem isn't partnering — it's that you're taking 100% of the financial risk for 50% of the profit.

Run the math your partner doesn't want you to see: You supply $100K HELOC (call it 8.5% in today's market). Say you buy at $150K, rehab $50K, ARV $240K. Six-month hold = ~$4,250 in HELOC interest alone, plus

insurance, utilities, taxes — call it $7K holding costs. After 6% agent commissions ($14,400) and closing costs (~$3K), your net proceeds are ~$222K. Subtract your $200K investment + $7K holding costs =

$15K profit to split. You get $7,500. Your partner gets $7,500 — but he risked $0 and collected draws along the way. If the deal goes sideways, you eat the entire loss. He walks away whole.

The tax hit nobody mentioned: Flip income is ordinary income, not capital gains (IRC Section 1221 — property held primarily for sale is excluded from capital asset treatment). In Kentucky that's your federal

bracket + 4.5% state flat tax + 15.3% self-employment tax on the profit. Your $7,500 could net you under $5,000 after taxes. The HELOC interest IS deductible against the flip income (IRC Section 163), but

only if you properly allocate the loan proceeds to the investment. Document this from day one.

The legal red flag: No mention of an operating agreement. Without one, you have zero recourse when rehab costs balloon — and your partner controls the labor AND the material draws with no fixed bid. That's

not a partnership, that's a blank check. Kentucky requires GC licensure for projects over $1,000 (KRS 198B). Verify his license and insurance. If he's unlicensed and something goes wrong, YOUR insurance gets hit as the property owner.

The operational tell: 2-3 flips per year for someone with their own crew is low volume. Either he's very selective (good — ask to see his last 3 closing statements) or he can't close deals and needs your capital to survive. The answer tells you everything.

What I'd do in your position: Don't abandon the idea — fix the structure. (1) Get a fixed-bid contract for rehab, not draws. (2) Cap your total exposure before closing. (3) Split should be 70/30 in YOUR favor — you carry all the risk. (4) Get it in writing with a KY real estate attorney ($500-800). (5) Ask for his last 3 HUD statements. If he won't share them, you have your answer.

You've got the license, the capital, and 10 years of education. You're closer than you think — just don't let the excitement of "finally doing it" override the

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James WilcoxBusiness Member

Real Estate Agent · Bowling Green KY ~ Lexington, KY · Member since 2015 · 1k+ posts · 602 votes

6mo

Quote from @Michael Davis:

To start out I have been following bigger pockets for around 10 years. I have been studying and educating myself, and I am finally at a point in my life I want to try and invest in real estate. I got my real estate license and had some success my first year as a part time agent and part time w2 employee but my W2 started to require a bit more of my time which caused me to put being an agent on the back burner a little. I have secured a HELOC with a local credit union of $100,000. I ended up running into another agent who partners with investors and acts as a GC and has a small crew of guys doing the work. The prior agreements he has with other investors is they supply the money for the buy and the rehab. Investor pays him a draw to buy material and I assume pay the labor doing the work. The investor is paid the initial investment plus holding costs back then the profit is split 50/50 after all the closing costs and real estate agent fees are paid. He is only doing 2-3 flips per year. I am in a discord community of real estate investors and they are suggesting that the potential partnership is less than ideal. I have some hesitation of trying to find a flip, run comps on the potential deal, get bids from 3 different GC's and execute a flip without knowing what I don't know all while trying to hold down a W2. I'm not sure what to do at this point and I thought I was getting close to getting my first flip going. There is a level of speculation from a third party of why would this potential partner do what is purposed unless he is making out like a bandit. Any and all advice is welcome.

@Michael Davis Welcome to the BP forums. If you ever want any advice, feel free to reach out. I’m the Kentucky guy on BP and lived in Lexington for almost a decade.

You've got what it takes to make this happen, so stop doubting yourself so much. Yes, it can be hard to balance an REI career with a W2 job, but it's definitely possible. I know because I've done it. You don't need to do 2 or 3 flips a year right away. Just focus on one project at a time for now. There's no need to compare yourself to others.

If you’re licensed, you already have a big advantage. You can run your own comps, analyze potential deals, sell your finished product, and get bids from three different GCs since you’re already plugged into the local network. Plus, if you’ve been following BP content for a decade, you’re more prepared than you probably realize.

Congrats on getting your HELOC. Now go put it to work.

Good luck with all your future REI ventures.

REI James w/ eXp Realty54 Reviews

Website View Page

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Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

6mo

@Michael Davis

i don't really have a silver bullet or cheat code for you. LTRs are just tough right now. they're not going to cash flow anywhere in the first few years. (if someone uses the word "cash flow," they're trying to sell something.) so if you shell out a big down payment you're going to be waiting a long time to actually make money.

with that said, i'm still buying them - i BRRRR, so i get my capital back and i try to be break even on rent. the benefits will accrue in the long term.

house hacking is a potential short cut, but it doesn't work for everyone as it depends on lifestyle, commute, family situation.

hope this helps

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