How To Setup Foreclosure Buy/Sell Partnership??

Question

I'm an experienced foreclosure flipper but am getting older and slowing down.  I've had two other foreclosure acquaintances ask me to partner with them (they have some money but I have the most).   How would you set up such a partnership that protects all parties?  Does anyone have a contract or agreement they would share?  There's a lot of issues!
1) One person buys at sale and gets title alone, or partners put in equal amounts to buy with tenants in common title?
(If tenants in common and one dies, how do you deal with the heir?)
2) Who cleans, paints,and does fixup?
3) Who pays insurance, taxes, contractors?
4) Do we rent or flip?  At what price?
5) What happens if one party does not perform as agreed?

Anyone experienced with this type of arrangement?

Thanks

Mark Updegraff · Answer

I haven't done it.  But I don't see why purchasing with a LLC that has a clearly defined operating agreement wouldn't do the trick.

Justin S. · Answer

Hi Lorenzo

You asked me to chime in on this, so I will give my thoughts.  You received some good advice above and partnerships are always hard.

The partnership you want to accomplish, per your post, is to have two active partners.  In this case, each partners company can form a general partnership, which is really just a set of rules you each need to abide by.  I'm not a fan of partnership with two active members.  I do not recommend partnerships like this because one person always works harder than the others, and situations get tense.

I prefer the "the money guy" and "the worker bee" partnership.

One guy brings a certain amount of money to the table, agree's with the rehab plan, and then steps aside.  They writes checks.  Depending on the situation, their money can be secured by being on title, or you issuing a DOT to them.  The worker bee then executes the plan and makes sure everything goes smoothly.  They may even a collect a percent of the profits for the labor they put in (5-10%).

If both of you want to be active, then I would switch on/off.  On house A, you are the active guy and on house B you are the passive guy.  That way, no one is stepping on toes.  And perhaps you will find out that one role better suits someone.

Also, having a good partner is also key.  I do not recommend it to others but I have done several partnership deals with a handshake.

J Scott · Answer

Agreed (and I have done it)...

Just make sure that all rights, roles and responsibilities are clearly delineated in the Operating Agreement (and make sure you consider as many situations as possible, however unlikely).

My general rule of thumb is that I wouldn't enter a partnership with someone unless I'd be comfortable doing it without a contract.  And even then, I'd only actually do with a good contract...  :D

James Hamling · Answer

I have done the partner route, several times, under several structures. Seriously, many many. Heres my #1 advice

!!!!!!! DONT DO IT !!!!!!!!!!!

lol. Seriously, DON'T.  Every time, no matter how fancy I structured it, JV's, LLC's, corp's, every time it has been a HUGE pain in the azz, with conflicts and bs.  Find a way to partner WITHOUT partnering.

Oh, and I didn't even mention the tax issues, or dumbfounded closing co's so they want to hold proceeds in escrow for a time. Seriously, no matter who I did one with, no matter the structure, there was always a bunch of bs that made it not worth it.

Lorenzo Baranos · Answer

This is an update after giving more thought to this, my original post.  It seems that with all the issues involved in a complex partership agreement, it could end up to be a nightmare.  What we need to do is KEEP IT SIMPLE. Would this work?

1) I would buy the property and title it in my name only.
2) I would immediately sell it to my "partner" at a 15% profit using a contract for deed with $10,000 down, interest at 6% but no payments until a balloon for the remaining balance on or before a year's time.  It would include requirements such as insurance, taxes, approval of major remodeling, etc.

My money would then be secured by the title, and the $10,000 down would cover any legal trouble if my "partner" were ever to try to complicate my title or fail to make the balloon payment.  
On the other hand, my "partner" could improve the property and sell it at a handsome profit for himself.

What do you think?

How To Setup Foreclosure Buy/Sell Partnership??

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