Becoming a (small-scale) financial partner for my first flip deal

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Becoming a (small-scale) financial partner for my first flip deal

Alex C.
Cincinnati/Dayton, OH · Member since 2017 · 15 posts · 7 votes

Hello,

I've been reading the forums/lots of REI books and listening to hundreds of BP podcasts over the last year, and I'm ready to jump in and start on my first deal. My long-term goal is buy and hold, likely with BRRRR-style rehab and refinancing where possible to steadily build a portfolio. Throughout my education I've heard from investors of all levels of experience that pretty much everyone makes their biggest mistakes on their first flip, and that it can be considered a success to just break even on the first one. Many times an experienced podcast guest will respond to the question "what would you differently if you could do it all over again?" by saying that they would definitely partner with someone who knows what they're doing for their first deal or two. Learn from someone else's mistakes, don't reinvent the wheel, etc.

My goal for my first deal is to financially partner on a flip with someone who has some successful rehabs under their belt so I can be involved in a deal, see firsthand all of the stages of the process, and learn the basics from someone with some proven experience. I have $25,000 to put towards this, and I'm in southwest Ohio where distressed 3/2s are often well under 100k. I know the details will depend on the specifics of the deal, but I could use some advice on some options for how a deal like this might be structured. My guess is that there would be an x/y split of whatever profit is realized at the end of the deal (rather than interest or points being involved), but I would welcome any thoughts or suggestions on this.

Thanks,

Alex

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  • Rob Beeler
    Investor · Dayton, OH · Member since 2016 · 5 posts · 0 votes
    8y

    Hi Alex, 

    Congrats on the decision to jump in. I own two rental properties in the Dayton area (both in Centerville, great school district!). I also worked with a partner to successfully flip a 3/1 single family home last year in Kettering. 

    I am curious as to how you would want to structure a potential deal?? Do you bring anything to the table other than cash? I bought the flip last year using a HELOC on my primary residence. Given the affordability of properties in SW Ohio access to cash is not that important. ?? Just a thought as you co wider how you might want to partner with someone.

    Best, 

    Rob

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  • Alex C.
    OP
    Cincinnati/Dayton, OH · Member since 2017 · 15 posts · 7 votes
    8y

    Hi Rob, thanks for the reply; that's the type of insight I'm looking for. I would expect that a split ratio would heavily favor the partner to reflect the fact that I would just be providing cash.  I'm not looking for serious returns on this first deal; I just know that it's important for me to take action and actually get involved, and I hope to get some firsthand education at the same time.

    I'm thinking that my value to a potential partner would be providing access to interest-free, point-free funds that could cover a significant portion of the deal (down payment and a chunk of the rehab costs, for example).  I would only expect a relatively small percentage of the final returns, and to be kept appraised of the main details throughout the process (contractor/agent selection, materials, budget, schedule, etc.).  

    I would appreciate any additional thoughts.

    Thanks,

    Alex

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  • Michelle B.
    Investor · Lebanon, OH · Member since 2016 · 144 posts · 87 votes
    8y
    Alex C. Based on what I read it seems as though the only reason you are taking this path is because you are afraid you will make a mistake on your own. I would argue that you have an equal amount of risk (if not more) trying to find the right partner/situation/deal that is going to give you what you are actually looking for. Not everyone loses money on their first deal. Not everyone breaks even on their first deal. We made $45k on our first deal (our projection was $25k). Yes, you have to buy right, estimate expenses well, determine ARV properly, etc etc etc. However, I trust myself more than I trust others. I also learn more (and perform better) when failure is not an option. What I’m getting at is - why not just educate yourself as much as possible up front, then jump in (on your own)? Good luck! Michelle
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  • Alex C.
    OP
    Cincinnati/Dayton, OH · Member since 2017 · 15 posts · 7 votes
    8y

    Hi @Michelle B., 

    Thanks for the reply.  (I'm in Lebanon too, by the way.)

    I appreciate hearing your perspective.  I recognize that mistakes are inevitable and risk is inherent in any investment, so as a beginner I'm trying to be extra cautious and take steps to minimize the impact of potential problems (while making sure to avoid "analysis paralysis").

    The other factor that I didn't mention is that my wife and I just had our first child in December, so we're still adjusting to everything that comes with along with having a new baby in our life, especially the impacts on sleep and free time.  My thinking was that a partnership would let me stop postponing my entry into real estate investing and jump in now without having to do some of the more time-consuming management and organization, while also gaining some valuable firsthand education so I would be better prepared for a subsequent deal on my own.

    On the other hand, our son is sleeping a little longer each week, and my wife and I have learned to be more efficient and strategically productive around the house to get a little free time here and there.   We might be nearing a point where I could start getting a team in place in order to pursue a deal on my own in the next few months.  I will definitely give this some thought.

    Thanks,

    Alex

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