I'm very new to BP (like last week new) and I'm already just so hungry and excited to have found this.
I am interested in investing in multi-unit properties and was doing a search in my office when my co-worker came in to chat with me. I told him I want to buy a duplex but I'm trying to figure out the best way and he just casually responded "I'll go in with you, I have 100K just sitting around" as if we were just discussing ordering sandwiches or something. Did I just find my first private lender? Oh the wheels are turning, and I want to do this the BEST way possible, but I'm not too sure where to start.
I'm looking for properties in the 200-300k range: 1.) Do I use the money as down payment and rehab costs and we split the monthly cash flow 2.) Do I just offer a ROI on his investment and keep everything in my name ...
I'm sure there are plenty more options as well, but I would like to get opinions from the group?
Thanks for reading and happy real estating!!
Jo the first place I would start is to take a real estate investing course in the area you would like to focus on. Just Google for real estate investment courses. Starting right here in Bigger Pockets is a good place.
The biggest mistake I see almost EVERYDAY as a lender are new investors who have not taken a training course and learn as they go. In my opinion, this is a costly and risky why to learn. Some mistake you just do not have to make.
That's my take Jo. I wish you the best.
Kind of sounds like dating someone in your office.
It might work out great. You might end up losing your job and the relationship.
I would not instantly say no, but be very very careful.
Probably the best way to structure that would be you to use the 100k as the down payment and or rehab money for a value add deal. Your colleague gets a second lien on the property as security and gets cashed out when you sell or re finance. You would negotiate and acceptable interest rate and potentially and up front fee as well.
I have lent money to friends before for their projects and have charged 10-11% and 3% up front. The note was interest only and had a balloon payment after 3 years.
You need to incorporate these debt payments into your numbers and still have a deal with acceptable returns.
But more importantly you should get as educated as possible and put together a package for potential private investors. This colleague of yours may just write you a check without doing any background check or research but that would certainly not be the norm. Also you need to ask yourself are you comfortable taking this person's money if they are not asking tough questions and understanding the risks? What if things go wrong and the deal loses money? What if you cannot make the agreed upon payments?
Not trying to discourage you just putting some questions out there for consideration.
You might consider having a good attorney work with you to draw up a JV agreement. Being so new, they'll help to point out things to you that you may not have considered that may happen in your partnership so that you are both clear about what you are getting into and what your roles are. How long will his money be in the deal? What happens if it goes longer? What happens if he needs or wants to pull it out? Will he have recourse against you if things go south? There are a number of things that can go wrong when buying property with a friend's money and you should both be clear about how you'll handle that lest they cease to be a friend.
You should probably check out some of the webinars here to get at least a little more knowledge on what awaits you. @Brandon Turner has a number of them that walk you through everything from finding a property to evaluating it.
All great advise! Thank you so much for taking the time to write back, I really appreciate it.