My son is new realtor and 23 years old. We would like to form a partnership to buy and rehab/rent. I would like an opinion on how to draw up a partnership and how to split profits/income. I will provide the down payment and take out the loan. He will [already has begun] find possible properties and scope out the neighborhoods to make sure they are not "sketchy" and place the bids.
I work at the construction dept of a large hospital and have a friend who is a seasoned project manager with a background in building new commercial properties. He might agree to consult in helping us estimate the work that will need to be done prior to purchase so we can determine if it is going to be a good property for us.
I plan splitting the rent/proceeds w/my son, plus he'll get the realtor commission [i figure yes, as I would pay it to someone else if he weren't one - but I wonder if there are other thoughts on that]
As for my consultant friend, do I pay him a flat fee [if yes, how much is fair?] OR do I offer 1% of income [rental and sales] to entice him to help with future rehabs]?
Thank you in advance for your thoughts and recommendations!
Yes of course he should get the commission. Your first property should be in both your names and that sounds fair to both of you. You are putting in the money and he will be doing the work.
"As for my consultant friend, do I pay him a flat fee [if yes, how much is fair?] OR do I offer 1% of income [rental and sales] to entice him to help with future rehabs]?"
I think about your "consultant friend" that all this is premature. You certainly should not make any kind of permanent arrangement at this stage. You don't even have a property that you are considering yet. The property will speak to you and you can do something concerning that first property when you are ready and see what you need. Your friend is a commercial project manager, he knows commercial construction, probably not kitchens and baths and small mechanicals. Your real estate education will be incremental.
You and your son should join a real estate club in your area. Perhaps different ones from each other? Also Join a Real Estate Meet Up Group.
Get active on Bigger Pockets.
Read everything on Bigger Pockets along with Real Estate investment Books. Run your deals by Bigger Pockets, run your deals by your Real Estate and Meet up Groups. let us know how you and your son are doing.
You are doing the right thing for your son and it will work well for both of you
From my experience I'd advise having a partnership on a case-by-case basis. You're family, which will make it easier, but having a split set in stone might make things more difficult down the road if you're both putting in different amounts of work for different properties. Barbara gave good advice there -- let the property decide those details. If he's the Realtor then yes, he should get the fee. Fair's fair.
As for the contractor -- I don't see where he adds value. You can have other contractors come, bid, and maybe find a better deal, especially as he's commercial. If you want to give him a fee just buy him a six-pack of beer for helping out. It seems like you're leaning on someone you know because that feels more comfortable starting out, but I'd also advise that you don't set that in stone since what's comfortable and what's not will change as you get more experience. Let your options stay open at this point. You might not like working with him!
Ditto to the rest of Barbara's advice, too (good post!): read up, learn as much as you can, join a real estate club and meet other investors. Knowledge is power and all that.
Good luck! Enjoy your new adventure. It's a great opportunity for you both and especially your son, starting a that age.
Thank you both,
@Peter MacKercher , the contractor friend is not for the GC portion, but to pre-inspect homes for things I may not know to look for.
I definitely will take every property case by case and appreciate the input - which in my heart I knew but needed to hear.
@Barbara G. , thank you for the perspective. I have been on BP for about 2 weeks now - reading everything I can, listening daily to a few of the podcasts and webinars. I think I'm obsessed -LOL. I have a new question, but will post it w/a new title. Look forward to hearing more from you.
Pretty much, almost always partnerships suck.
Yeah they seem like a good idea at the time, but ask yourself, how many of you are still with your babydaddy or babymomma? That seemed like a good idea at the time didn't it?
They can work, but it has to be with people with proven track-records who can "deliver" on schedule. And there has to be very clear boundaries and responsibilities.
It's a positive thing to be obsessed about something that you are going to invest in. You and your son will make a good partners. If you look at houses that are not too, old, perhaps no more then 25 or 30 years? you will not have the more serious renovation problems. Most houses need some renovation and you will get to know those costs rapidly.
Have you looked at anything that your son has targeted yet?
Your money, your house. I would just have a side JV agreement on rent / profit amounts or %, if any. Receiving commission at the buy and sale is how realtors are paid. An equity partnership on top is giving too much, imo. 'The only ship not meant to sail is a partnership'. You don't want Thanksgiving turkey to forever taste different because of this @Lois Stern !
For any partnerships you form, seek the counsel of an attorney. Even however you elect to operate with your son. This should very much be treated like a business.
The Commercial Project Manager, why would you use him to inspect residential property? Is a reputable home inspector not available? I ask because a regional residential home inspector is going to have historical knowledge of your local market and the homes within that market. Where as a Commercial PM, if he doesn't inspect homes on the side, is really just going to give you his or her perspective. Not that their perspective is not valuable, but if I were buying a SFH for my family, I would call a home inspector, not a PM. If you need a reputable inspector I can recommend one to you that will travel to MD.
I would also agree that anyone you bring in to pay for services should be brought in on a short term, per project basis. Let the relationships you build with others happen and develop naturally over time.
I hope that helps.
Originally posted by @Steve Vaughan :
Your money, your house. I would just have a side JV agreement on rent / profit amounts or %, @Lois Stern !
Well I disagree because this partnership goes with the desire for Lois Stern to see her son do well and get a start in the real estate investing bussiness. She likes the bussiness also and it sounds like it would be a good thing for her. Most people spend much more money sending their children to college. This first property, will be an important part of her son's education and it Piggy backs on his real estate license and his chosen vocation. I would happily do this for my sons. Certainly her son has a foundation in real estate.
We are only talking about the first house and the first investment. They will see how it goes with this first property and then they can make a decision on how to proceed on he 2nd property.
@Barbara G. I didn't see any reference to this being a short-term idea in the OP. Anyone would want to aid their son or daughter, sure. Most all partnerships start out rosie and we tend to only read about the successes, especially in places like here on BP. To give a realtor more than their commission on both ends for locating a deal, in general, is asking for resentments. I didn't see where he will be doing additional/ongoing work to justify an equitable interest. Another party was going to do the project management. As a new realtor, I would be happy with a new client off the bat. Especially one that sounds so neat and is my mom! Thank you for disagreeing. Varying views are what keep these forums interesting and valuable!
They certainly can reduce the commission, everything is negotiable. I think everyone is in agreement that this does not have to be an on going partnership. "another party is going to do the property managment" you say but that is incorrect. Another party is NOT going to do the property managment.
I think Lois Stern also said they would do the partnership one property at a time. Their first purchase will certainly be a learning and growing experience and it will point them in the direction that they want to go. Sometimes a partnership is the very vehicle that can move 2 people along, where if they were alone they might not be able to do it t all.
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