My mother-in-law and I have been discussing working together on real estate investments for a few years. She's getting close to retirement and wants to get her feet wet now so she has something to keep her busy during retirement. Our strategy is to buy foreclosed or short sale single family homes and flip them.
Some background: I work as a project manager for a very large new-construction general contractor. I have close relationships with dozens of contractors in any and all trade areas. My mother-in-law was previously a Realtor, but this was 30+ years ago and she recognizes that times have changed.
She is good at finding properties; I'm good at the numbers behind the deal. She'll be our go-to for buying and selling; I'll be overseeing the contarctors. She will be the majority of the funding on jobs.
Neither of us have connections with lenders (outside conventional mortgage types) - this is something I'll need help with in the future.
As for now, I want to discuss with her about starting an LLC. I understand the importance of this from a risk standpoint, but a sticking point will be ownership share, and therefore profit sharing. In our situation, what type of ownership split should be expected? Is 50/50 fair for me to suggest? I recognize she will be providing most, if not all, of the seed cash to get us started.
On another note, If we're doing 1-2 homes at a time, how much time should I expect to dedicate per week? I'm used to running one job for 18-36 months, $50M +, so this is a much smaller scale for me. I just want to make sure this won't require a plurality of my time before I jump in.
Thanks in advance.
@Doug M. Welcome to BP! I've got some tips for you, but before we get to that, let's address your questions.
You are smart to put your LLC structure in place, before you do your first deal. (nothing should be construed as legal advice!) The great part about an LLC and the accompanying Operating Agreement is that it doesn't have to be an either or situation. You get to structure it anyway you want. So, you could structure the ownership portion of the LLC 50/50, so that you both held equal Class A (Ownership) shares, meaning you have equal voting rights. Then you could grant unequal, based upon invested equity, Class B (non-voting) shares. The Operating Agreement could then spell out a timetable or process for repayment of the excess equity (meaning that part that is more than yours) she has in the company. The Operating Agreement also determines how & when profits are distributed. So, for instance, she could contribute $100k. The OA could say that she will be repaid out of profits earned, including a 8% return, and the prepayment would be based upon the first 25% of the net profit from each deal completed. Like I said...however you want to write it, as long as it can be calculated and documented.
So...I'm in IT project management, so I get it. Personally, I would still use a GC, then I would be functioning more like a Program Manager for the GC on each project. I would build out the project plan for the project using Zoho project management, which is cloud based, and teach the GC how to update the plan, including attaching photos of major components, as they are completed. Then I have a status meeting with them once per week. Otherwise, I would randomly just show up once or twice a week on my lunch break, just to check the waters!
Here are my Quick Tips (If you're listening to the Podcasts, you'll understand the reference. If not...see Tip #2!!!)
1. Get involved in the forums. Offer what you can and absorb what everyone else offers.
2. Listen to as many Podcasts as you can. I am listening to all of them, some of them more than once. There has not been a single broadcast that has not provided me value or that I felt was a waste of my time. Great content!!
3. Download and read the free How-to-Guides, starting with the Ultimate Beginner's Guide to Real Estate Investing. http://www.biggerpockets.com/real-estate-investing
You could pay thousands of dollars for this information BP offers free. (I almost did!)
4. Set up some keyword alerts. It will keep you engaged in valuable discussions, while you're getting plugged in.
5. Get involved with your local REIA's. Real Estate is, as I'm learning, all about relationships and networking. Make it work for you!
The BP community is awesome, and you've taken a great first step!
I would just do a 1 paragraph joint venture agreement. Setting forth what each will do and fund and how each will benefit. Also a signed in blood agreement that you will never come to hate each other because things don't always work out.
Keep it simple until you get huge.
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