I'm just curious if anyone has had luck with structuring a partnership for BRRR investing, especially in the S.Texas area. I'm intrigued by the idea of utilizing BRRR but I'd prefer to partner with someone who has the experience and hustle to manage the process from sourcing to renovation to property management in exchange for a fixed fee or slice of equity and cash flow (without having to commit upfront funds to the project). I know I'd be giving up some of the value but I'd be okay with that if it was a mutually beneficial partnership that could be scaled with revenue sharing throughout the rental period and on any upside from a refinance or sale. I guess this would be similar to turnkey investing (e.g. roofstock) but at a more localized level with more of a partnership on the back-end (refi/sale).
Interested to hear if any others have gone down this path as I'm sure it has various pros/cons.
Thanks in advance!
@Mark Marino i haven't partnered on BRRRR deals but we have done many of them. I think it may be helpful to envision what you would bring to the partnership vs what the other party would bring. In my opinion, if someone has the hustle to source the deals and manage the projects, they just need a lender (debt partner) which is generally cheaper than an equity partner. What do you see your role being? The hard part is the consistent sourcing of deals (in my opinion). The old saying is that if you find a good deal, the money will find you
Now if you are a great deal finder, I think you could be the missing piece for someone who struggles with that piece. For my business, I would partner all day long with someone who can produce consistent deals because I have access to capital and systems for project management and property management. However I don’t need partners for the things we are really good at.
What value do you bring to a partnership? I may be inferring too much but it sounds like you would like to bring the money and be more passive and partner with someone who would do the work?? If so, you may also consider private lending. We borrow private money and lend private money to other investors. The lending is the easiest money we make. Great returns too that are backed by real estate. Just another thought to consider. Good luck!!
Hi Will, thanks a lot for the solid post! Sadly I think money is about the biggest value I bring to the table so I think I'll explore private lending as you suggest. I just sold a property via a 1031 so I'll need to actually get into another investment but maybe something a bit more turnkey makes sense for my situation. Let me know if you are ever in need of other investors for your private lending activities. Thanks!
@Mark Marino funny you say that. We’re i. The middle of a 10-31 too. I’ll keep you in mind if I see lending opportunities. Best of luck.
"Partnering" is my 2nd most common type of lawsuit that comes to my office (construction making the top of the list). At some point either the money partner will start questioning where funds are going or argue that the split is not right. Or the non-money partner is wondering why they are doing all the work and splitting a lot of profit with someone who sits back and collects on their sweat.
You see where this goes?
If you want to do this, and it can be great, get a lawyer and do it on a per-deal basis. Get everything spelled out in writing BEFORE there is a profit to fight over. Figure out, in broad strokes, what happens if/when things go sideways. COMMUNICATION is key. Manage expectations.
Honestly, if all you bring to the table is money but you want to learn the flip side, be a private lender (promissory note, deed of trust (because...Texas)) but offer low interest (but DO collect some interest each month) and a split of the net profits (aka, equity kicker). Do construction draws - do NOT give all the rehab money at the closing table unless it is less than $10K. Interest on the note in the 3-6% range, and the equity kicker in the 20-40% range is common. It should work out to be about a 15-20% cash-on-cash return.
Do your due diligence on the people and the property. Get a copy of their driver's license, etc.
Thanks Jerel, really appreciate your post and additional insight in regards to private lending. This is certainly something I'd love to be able to do regularly out of my solo 401K. Any input on how best to find lending opportunities?
Dealflow comes from putting your name out there as a lender. This is by going to networking events.
Problem is, you have limited funds, so if you get too much dealflow, the people with the deals will start dropping you from their list because your money is always out on another deal. Better to find a handful of lenders that you know/like/trust who already get deals sent to them, and see if you can lend with them.
ALWAYS do your own due diligence and check everything twice. Once the money leaves your hands, your leverage is much reduced.