How to Approach Possible Partnership?

4 Replies

Hello BP,

I have been actively speaking with a guy regarding Real Estate Investing, Fix & Flip to be more accurate. There is a few road blocks that is preventing this partnership from happening and I was hoping someone with the same experience can point me in the right direction.

1. I have never had the opportunity to partner up with someone before. For the past couple years I’ve been focusing on gaining as much Real Estate knowledge as I can while I financially prepare myself to start investing myself.

The guy who wants to partner with me basically wants to use my knowledge while he uses his funding. He brings the capital I bring what I’ve been studying up on. While this can open a lot of doors for me, how would I discuss the terms of this partnership?

2. This said partner has the slightest REI knowledge. He isn't someone who has spent time into learning how to actively invest in deals. Ultimately he wants to sit back and just be an investor in it. Is this someone worth partnering up with since essentially the only thing he brings to the table is the funding part?

From my understanding I am the one who has to handle ultimately everything and he just wants to see what type of profits he can make per flip.

How exactly should I set the terms of this partnership & how can I make this fair for both parties?

@Aaron Phillips I would use him as a private lender. Set everything up in your name and keep it that way, then use his money. Give him a return between that of a conventional mortgage and that of a hard money lender (HML). I have done this with family. It keeps things clear and easy to follow. They lend me the money backed by the home as an asset and in return I give them a decent return on their money. I structure mine with 0 points and a 9 - 10% APR. Payments are interest only on a 9 or 12 month term with no prepayment penalty and full payment due upon sale of the property. They get a competitive return on their money and I get to do a deal that I wouldn't have been able to do otherwise. You can set up any LTV or max % of ARV that they are willing to put in. I always make sure I have some skin in the game.

I think this is most definitely the way for you to go. Partnerships can get messy. Money lending is short term and independently mutually beneficial.

@Aaron Phillips You will just set up a deed of trust and your title company will file it with the county clerk. It will add about $50ish maybe $100 to your closing costs but it will give you both piece of mind. I would just look up what West Virginia does to record mortgages.

When it comes to family, we notarize a deed of trust and keep it on file but we don't pay to have it recorded. It really should be recorded but we are a little more loosey goosey with things since it is a line of credit and is paid on direct draws.

Hey! I’m currently in the same situation. I don’t have a ton of input on the structure of partnerships vs private financiers, but I can say that with an all-money no-REI knowledge investor, lending might be the best way to go.

That being said, I’m following this discussion to glean as much wisdom from the greater BP community as possible. Great question!