First Time Investment with Partner - SFH, Duplex, or 4 Plex

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First Time Investment with Partner - SFH, Duplex, or 4 Plex

Jennifer L.
Member since 2020 · 2 posts · 1 vote

Hi Everyone!

My husband and I bought our first home January 2020 and looking to get into REI. We want to start small just to get our feet wet with a friend and purchase a SFH, Duplex, or up to a 4 Plex depending on the price. We live in Wisconsin and want to purchase nearby as I know the market here and we will be self managing. Our friend lives in LA (is originally from Wisconsin) and wants to start REI too. We all have great credit, down payment, and make good money working remote. This will be my friend's first property and he has never owned a home.


Since this is a partnership and we want to protect our own assets, is an LLC the best way to go? I know commercial rates will be higher. Is there any one for my friend to get a conventional type loan for lower rates, but have us included as owners for the home? I'm not sure he would qualify since none of us will be living on the property.

Thanks for the help!

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Jeff CichockiBusiness Member
Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
5y

Hey @Jennifer L.,

Glad to see you here. I'm from Wisconsin as well. I'm up the Green Bay area.

I personally love partnerships. Most people hear that word though and cringe. Partnerships often go sideways and end friendships. Why, because people "jump into bed" with no real plan and no really deep discussions about how things are run and managed day to day, how to deal with disagreements, roles & responsibilities. But, done right, they can catapult yor investments much faster than on your own.

Personally, I like the LLC route best, but that's because I have assets to protect. However, iIt's not necessary to have an LLC. If you decide (and only you can decide) to not use an LLC, as a minimum, get a really good JV agreement and adequate insurance to cover you and the property you buy for liability. I would suggest talking to your insurance agent about an umbrella policy if you don't already have one. Note: Most insurance companies require you to have the highest levels of coverage on your car insurance to get the umbrella coverage, so if you aren't carrying that already, plan to up your premiums there as well.

I would also suggest you talk to various lenders. Get to know several banks, credit unions and hard money lenders. Not all lenders are the same. Some like investment property, some don't. Some will lend on properties that need work, some won't. I would recommend having 3-5 lenders who are interested in working with you in your back pocket. Ask other investors in your area who they use. Referrals are always the best way to get in the door.

Good luck!

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  • Jack Medford
    Investor · Nipomo, CA · Member since 2014 · 366 posts · 401 votes
    5y

    @Jennifer L. Welcome to BP! Where about in Wisconsin are you? 

    As far as the partnership goes... A lot of people like LLCs to help keep investment assets separate from personal assets, but it is not 100% necessary. You can also draft up partnership documents that govern the business relationship, without forming an official LLC.

    Conventional loans are absolutely possible for investment properties. If you go that route, I'd suggest all of you speak with a lender and qualify together. Nothing says you can't all be on the loan, especially since you all have great credit. 

    1Reply
  • Peter Falk
    Real Estate Broker · Madison, WI · Member since 2015 · 118 posts · 60 votes
    5y

    I would talk with a local WI lender about options, but maybe the friend in CA could just get a loan and buy as their vacation home (better interest rate and probably lower down payment options) and you could assist with management and down payment funds and do some form of ownership agreement. I know the best terms for loans don't coincide with owning as an LLC.

    1Reply
  • Jeff CichockiBusiness Member
    Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
    5y

    Hey @Jennifer L.,

    Glad to see you here. I'm from Wisconsin as well. I'm up the Green Bay area.

    I personally love partnerships. Most people hear that word though and cringe. Partnerships often go sideways and end friendships. Why, because people "jump into bed" with no real plan and no really deep discussions about how things are run and managed day to day, how to deal with disagreements, roles & responsibilities. But, done right, they can catapult yor investments much faster than on your own.

    Personally, I like the LLC route best, but that's because I have assets to protect. However, iIt's not necessary to have an LLC. If you decide (and only you can decide) to not use an LLC, as a minimum, get a really good JV agreement and adequate insurance to cover you and the property you buy for liability. I would suggest talking to your insurance agent about an umbrella policy if you don't already have one. Note: Most insurance companies require you to have the highest levels of coverage on your car insurance to get the umbrella coverage, so if you aren't carrying that already, plan to up your premiums there as well.

    I would also suggest you talk to various lenders. Get to know several banks, credit unions and hard money lenders. Not all lenders are the same. Some like investment property, some don't. Some will lend on properties that need work, some won't. I would recommend having 3-5 lenders who are interested in working with you in your back pocket. Ask other investors in your area who they use. Referrals are always the best way to get in the door.

    Good luck!

    Best REI Funding4.36 Reviews
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    1Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    5y

    Partnerships can be complicated - and like Jeff said, can end friendships. When you buy real estate you should always think in long timeframes, 10, 20 or even 30 years. Most likely your partnership will not last that long. You can still do it, but make an exit plan part of the JV.

    An LLC does not protect the asset, it limits the liability to within the LLC. It makes good sense to have every apartment complex in it's own LLC, but I am not sure what the benefit would be for one SF. An umbrella policy will cover $1m and is inexpensive (because the risk is so low ..)

    Good contracts are important, no lawyer needed, make sure you check out Wisconsin Legal Blanks for contracts and forms!

    1Reply
  • Rebecca KnoxBusiness Member
    Specialist · Milwaukee, WI · Member since 2014 · 1k+ posts · 1k+ votes
    5y

    Hi Jennifer, 

    Nice to meet you. My name is Rebecca and my husband and I have run Captain Save a Home LLC, Brew City REI Club, Brew City REI Training Cafe and Wisconsin Contractor and Handyman Club based out of Milwaukee, WI for the past 8 years.

    I have used Atty Taylor Rens to draft partnership agreements and operating agreements. Good luck in your REI Adventures.


    Captain Save-A-Home LLC
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