REI startup company?

6 Replies

So, I’m not entirely sure where to start with this question so I will just jump right into it.

For a while I have wanted to be a Real Estate investor. The hunt, the find, the returns, all excite me to no end. That said, last year was a big year for me. I started out and purchased a newly renovated and remodeled multi family. It has given me a little over 31% CoC return and 14% CAP rate. Bought it with no renters and in 24 hrs. had both units rented for the next year.

Well, since I constantly look at the markets around me (Triangle area of NC) to see what is going on I bumped into another multi-family (I only care about multi-families) and after seeing that this too was just recently renovated and remodeled I saw another great opportunity. Put an offer (had to fight a bit to get it) and closed late in the year. This was turn key in the sense that all 4 units were just recently rented by previous owner. This is giving 34% CoC return with right around 15% CAP rate.

Now there is of course more to each of these deals but so far with some dedication, organization and solid communication the portfolio is starting to build nicely and perform well.

My ultimate goal is to start an investment company/partnership. I have had about half a dozen people come to me wanting to give me money since they hear how well these investments are performing and hear about returns that can be handed out. However, out of those I would say 3 are truly serious. My question is this. Where would I start? Who would be a good person to speak with? Any tips and advice is very welcomed.

Thanks!

@Joseph Torres congrats on your early win! A couple of questions to consider are: 

1. What are your investing goals? How “big” do you want this to get? 

2. How willing are you to share the profit? Having partners helps you scale faster, getting you into deals you may not have had the wherewithal to take on alone. It’s the 100% of nothing vs 50% of something good philosophy. Just keep in mind the additional responsibility that comes with using other people’s money.

3. Will your partners be lenders or will they have equity? As LENDERs, irrespective of how the deal performs, they get their money back with the interest agreed upon. Most people will want to secure the loan against the property, but you can also ask if they’ll do unsecured loans (to give you the flexibility of moving funds from one deal to another). As EQUITY partners they share in the risk and the reward. If the deal doesn’t work out, you don’t “owe”, but if it does you all share the whole pie. Some will also do something in between...

4. How much control are you giving up? Will they be completely passive investors, while you run everything, sell when you want? Will you make decisions together, while one person serves as the “point person” communicating with vendors,etc. Or will you have different active roles - one person dealing with financing, the other dealing with contractors...

5. If you go the partnership route, is the partnership for one deal in question, or for any other deal you find...

Just a few thoughts that come to mind. Whatever you decide, make sure it’s spelled out in writing. Talk to an attorney, and ask specifically if the option you’ve chosen invokes securities law. 

All the best! 

1. What are your investing goals? How “big” do you want this to get? 

The short answer is as big a I'm comfortable with :)

2. How willing are you to share the profit? Having partners helps you scale faster, getting you into deals you may not have had the wherewithal to take on alone. It’s the 100% of nothing vs 50% of something good philosophy. Just keep in mind the additional responsibility that comes with using other people’s money.

My plan is to do quarterly dividend returns. I can see 10% being the number to start with which will be attractive enough for them to invest. I do not want to partner with them on the properties themselves but be in an investor.

3. Will your partners be lenders or will they have equity? As LENDERs, irrespective of how the deal performs, they get their money back with the interest agreed upon. Most people will want to secure the loan against the property, but you can also ask if they’ll do unsecured loans (to give you the flexibility of moving funds from one deal to another). As EQUITY partners they share in the risk and the reward. If the deal doesn’t work out, you don’t “owe”, but if it does you all share the whole pie. Some will also do something in between...

As stated above no equity just lenders. Now, this could change as time goes on and there is hopefully growth. However, I just want people to invest their money and not get in the way.

4. How much control are you giving up? Will they be completely passive investors, while you run everything, sell when you want? Will you make decisions together, while one person serves as the “point person” communicating with vendors,etc. Or will you have different active roles - one person dealing with financing, the other dealing with contractors...

The goal is to not give up any control and have them passive. Have their money make them money and they have to do nothing. That is hopefully going to be the selling point.

Now I'm aware all of this can change and it all depends on who you get to invest but I'm more looking for how does one go about doing this from nothing. Who is doing this or something similar that I can speak with? Is an LLC the way to go? A partnership? How do you disperse dividends to investors? Do you give quarterly reports on how their investments are doing? etc.. The nuts and bolts are what I'm looking to learn.

Following this thread. I, too, would like to know.

probably the easiest thing you can do @Joseph Torres (you too @Ruel K. ) is create an LLC per Property. A few chronological steps:

1. Place Property under contract using the “and/or assigns” clause. 

2. Find your money and set a call date for deposits (typically a few weeks before closing). 

3. Work with an attorney to create LLC, draw up operating agreement, name the members.

4. Finish due diligence and close. 

High level, happy to talk more specific, just give me a call. 

Thanks @Jay Helms. I might give you a call one of these days. This might be the kind of conversation that I need to get some real world feedback aside from all the reading I do here. Much appreciated!

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