Ready to go (possible deal); A little guidance please.

11 Replies

Hey everyone, I haven’t really been active in a while since I sold my rental property last year. However, my wife and I have since found new motivation and come into a little money and now we want to capitalize and make things happen. This will be a somewhat long post, so please bear with me. I have been on BP and learning about real estate investing for quite some time now and finally feel that she is coming aboard. I believe we are ready to make some serious efforts to realize our path to financial freedom. So now here we sit with a small, but useable amount of capital and the will to invest, but a little lost. There is a deal available to us as we speak which I will get into shortly, but I feel it is unusual in the REI sense a would like to see if I can get some guidance on it. Where I am seeking help and/or advice here is in determining what to do first. As of now, we have around $40,000 available to invest in a deal or deals. Possibly more if absolutely necessary. We definitely would like to eventually get back into rentals, both long and short (vacation) term, SFRs and/or small MF. But, I hesitate to use up what we have now on acquiring rentals and not have any left to acquire more or do the occasional flip for capital. So what we were thinking is to reverse that and try to get in on a couple of flip deals first to build up some more operating capital and then start buying rentals with the occasional flip along the way. Although I would love to try house hacking, it’s just not doable for us at this time. We are also very interested in commercial investments and possibly boat and rv storage down the road, but the focus now is just getting going. With that being said, I’m not sure we have the ability right now to take complete charge over an entire rehab project. With full-time jobs and three little ones in school and involved in extra-curricular activities, adding any more stress to our current schedule would spell disaster. We are really interested at this point in going into a deal or two as a money only partner and banking or reinvesting our returns. We are also not opposed to taking part in a syndicated deal as long as the returns are good. So now for a few questions: 1. If you were in our place, what would you do? 2. How do I go about finding investors / rehabbers who may be looking to work with someone like us? 3. Should we start an LLC and a business bank account for our real estate investment transactions? 4. Should rental properties be bought under an LLC. Thanks for your time! See the next post regarding the deal mentioned above...

And now on to the deal mentioned above:

My best friend has been wholesaling for about a year or two semi-successfully. He has the opportunity to purchase a property from a good friend of his for a killer deal, but he doesn’t want to flip the contract on this one.

Instead he presented me with the opportunity to help him purchase it and then resale. He says he already has a few buyers interested in buying it from him, as is, for substantially more the we are getting it for.

It could potentially almost double my investment at a 50-50 split. We wouldn’t even have to mow the yard. I would prefer not to publicly post the numbers at this time, but if you think you have some good advice, I can share that via PM.

So, it sounds like a no-brainer to me. But as usual, I’m sure there is something I’m not considering. So a few questions regarding this deal in particular:

1. What type of agreement should we use for this deal?

2. How should it be structured once we decide on the split?

3. Should I start and operate under an LLC and business account for this deal?

4. What are the tax implications for a deal like this? (Due to recent events, I’ve become very leery of tax involved with real estate and income.)

5. Any other advice you may have would be greatly appreciated.

@Tyson Dierschke , it sounds like you are a little scattered and want to do everything you can imagine. My basic advice is to pick a strategy and ignore all the many other real estate investing possibilities for a while until you have worked your strategy of choice successfully for a while.

If you want to do flips, do you really feel you have the will to do that? Nothing is as easy as it looks. Do you plan to do hands-on work, manage the project as a GC, or be a spreadsheet guy/project manager? Know what role you will play in the process and what roles you will hire out.

If you want to flip houses, flip houses. If the hope is to spin off extra money to buy rentals, that isn't unreasonable, but the focus to start should be on flipping houses only because that will be the thrust of your work for at least several months to start.

Thanks for the reply Kevin! However, I don’t feel that I’m scattered at all. I have a pretty good idea of how I want to invest. And I’m not trying to do everything all at one time. I’m just trying to figure out the better order to proceed.

As I stated before, I do not feel that taking total charge of a flip is in the cards at this time due to our current situation. I then went on to say that I would like to participate in some projects as a partner or as part of a syndicated deal.

I feel like I was pretty clear that my overall goal is to obtain cash flow through rentals, and that I would like to take part in rehab projects to build capital for that side of it. I do not want to be a full time flipper at this time. Maybe later when the kids are older, but definitely not now.

The commercial comment was just mentioning a future goal. Unless a impassable deal falls in my lap, I will not be actively pursuing that until later in my RE career.

@Tyson Dierschke I would suggest sticking to your core competency.  I am not aware of too many wholesales that require the grass to be cut in order to double your money.  I would suggest digging a bit deeper into the deal to understand it.  

With regard to your other question.  $40k is a great start, but hard to put a portion of it into work on a commercial level.  Typically, investments are $100k+, but some groups allow for less.  That being said, you have had success with rentals, why not continue?  Fix and flips do require a good amount of time if you are facilitating them.  I would research and find good companies that provide the rental services you are seeking.  However, that is for cash flow.  To build your nest egg you need to research exit strategies and comps to realize your gains.

Hi @Tyson Dierschke ! I kinda agree with @Kevin Sobilo , at least in regard to the multitude of questions you are raising - some of them worth of their own separate discussion thread (which you can search for and you'll find plenty of various advice).

But here is my 2¢:

2. How do I go about finding investors / rehabbers who may be looking to work with someone like us? Look for local meetups (meetup.com) - I'm sure Houston has plenty of them and that's an excellent place to start your networking. You should also be able to connect here with plenty of people in your area.

3. Should we start an LLC and a business bank account for our real estate investment transactions? Depends. What kind of transactions, what volume, in what terms. If it's just you, no partners, buying rentals with residential loans and little equity, probably you should concentrate on growing that first and getting some equity before you worry about LLCs, business accounts and asset protection. If you are doing one or two flips a year, maybe not - although for asset protection reasons it would be better to make them in LLCs (plus there are other tax considerations). If you do a lot of flipping, definitely LLC (see if Series-LLC is an option for you). If you do partnering, you do want to be covered with your LLC, separate from your partner.

4. Should rental properties be bought under an LLC? Depends. Here is a diagram to help you on this question.

1. What type of agreement should we use for this deal? First, never do business with friends. But if you decide to proceed, make sure you are clear on partnership terms. Read here: How to Effectively Conduct Joint Venture Agreements as a Real Estate Investor and here: Taking-on-partner-s-and-limiting-our-liabilites

2. How should it be structured once we decide on the split? See above. Plus, you should have your LLC partnering with your partner LLC, for asset protection reasons (like, what happens if he runs over someone with his car?).

3. Should I start and operate under an LLC and business account for this deal? See previous answers.

4. What are the tax implications for a deal like this? That's a loaded question. Wholesaling and flipping are active income taxed at higher rate. Rental income is passive income, plus you have all kind of deductions and paper depreciation.

5. Any other advice you may have would be greatly appreciated? "Ignorance is bliss. Knowledge is power, but also a burden. The cure to both - the 4 ions: education, action, progress(ion), not perfection".

Originally posted by @Tyson Dierschke :

So now for a few questions:

1. If you were in our place, what would you do?

2. How do I go about finding investors / rehabbers who may be looking to work with someone like us?

3. Should we start an LLC and a business bank account for our real estate investment transactions?

4. Should rental properties be bought under an LLC.

  1.  I did flips to help generate cash to buy my multifamily buy/holds when I was starting.  Some of them I never sold.  I tossed renters in there have still have them
  2. No secret on how to get investors. Find friends/family first. Next would be local REI groups. Next would be online crowd source, then HMLs
  3. No need for LLC
  4. Same.  No need.  People do LLCs because it makes them feel more official. 

Hi @Tyson Dierschke I don't have a long detailed post; however this sounds like this could be a really good deal worth digging into and crunching all the numbers and really deciding what you can handle in regards to the flip and if time wise it is doable. One of your goals is to build capital so this does fall under one of your goals and if this is a person that you believe you can trust and do business with, which is one of the main things that I would focus on (the partnership). I personally would be all over it. 

Thanks @Rachel Pervis ! This guy is like a brother and I trust him like one. I have done quite a bit of my own due diligence on it and we meet tomorrow to discuss. I also think it is a no-brainer. If anything, it’ll at least help us pay off some existing debt and get us in a better position to leverage more buy and hold properties. Anyway I look at this thing, barring something catastrophic happening, I can’t lose money on this deal. Again, thanks for you insight and encouragement!