What do you think of this possible partnership venture?

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What do you think of this possible partnership venture?

Aaron Yates
Investor · Macomb, MI · Member since 2013 · 654 posts · 115 votes

Hi everyone. As some of you may have seen, I attended my first REIA recently. I need to expand my network and connect with other REI's. So time finally allowed me to go.

While talking with people, a seasoned investor gave me a proposal after telling him a little about my ventures in Real Estate and my current holdings.

Ironically his proposal was the exact partnership I had planned in pursuing. I was speechless. I just stood there like a deer in the headlights and though "did he really just offer that?"

So finally I responded and said yes! That's exactly what I planned to pursue after building a rapport with the group.

Now, although I have only been active in REI for technically 4 years but only heavily the past 2. I have taught myself to do extensive property history research starting back in 2003.

I have bought a total of 6 houses since then and not a single one has been found by using a Real Estate agent. So I have multiple ways of checking property history. (this is relevant to what I'm about to tell you and will bring me to the question in my topic title)

So I finally had some time to look up the property information he gave in regards to some properties he already owns but hasn't had time to rehab and rent.

All the properties have 3 years of back taxes owed, various tickets issued, city clean up/board up fees, and all are tagged and require city certs now. I have not physically seen any of these properties yet. I always do my history research before wasting any time driving to the property.

I have my own opinion of this situation but before I saying anything, I would appreciate any thoughts you may have in regards to this (very seasoned) persons intentions of offering a partnership or even me buying them from him on wholesale.

The question is this: What do you think of this possible partnership venture and what do you think his intentions truly are?

Thank you for any responses.

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Account Closed
Involved In Real Estate · Lynchburg, VA · Member since 2013 · 246 posts · 75 votes
13y
Originally posted by Aaron Yates:
what do you think his intentions truly are?

Hey Aaron,

You know you won't get a serious answer on this. No one has a crystal ball.

We know nothing about him or his business model. Is he a slum lord?

If you don't feel comfortable and you see red flags already, then don't do it.

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  • Account Closed
    Involved In Real Estate · Lynchburg, VA · Member since 2013 · 246 posts · 75 votes
    13y
    Originally posted by Aaron Yates:
    what do you think his intentions truly are?

    Hey Aaron,

    You know you won't get a serious answer on this. No one has a crystal ball.

    We know nothing about him or his business model. Is he a slum lord?

    If you don't feel comfortable and you see red flags already, then don't do it.

    1Reply
  • Dell Schlabach
    Investor · Canton-Akron, OH · Member since 2012 · 917 posts · 477 votes
    13y

    You are apparently good at doing your research, trust it, and your gut, no matter the seasoning of an investor that wants to "help" get you a good deal.

    If I had not done my own analysis, and had agreed to some "great deals" from a very "seasoned" local investor, who "befriended" me, I would have got stuck with numerous properties that I could not have sold retail, and I would been stuck with rentals with terrible loans, in a business model I had no interest in.

    Sometimes a lot of seasoning just covers up bad meat. Be sure the meat is good before buying into something you will regret.

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  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    13y

    What exactly is he proposing? You may have mentioned in another thread and I missed it.

    Is the idea that he has the property and you have some capital to pay the back fees and violations, and then get them rented out and performing?

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    13y

    His intentions are to dump his problems on you and make a profit!

    You always need to do your own due diligence, your money is your responsibility. I also suggest you do your due diligence on this investor, not just properties. I'd want to see financials, credit, criminal history and talk to those who have done business with him. You can find his deals in court records. You need to know who carries the water if things go south. It will probably be you as he, so far, has not been that responsible in maintaining properties and paying taxes, that indicates financial problems.

    Buying his problems is one thing, going into business with him is another, I'd consider buying but would reconsider the business side. I'm sure he is acting in his best interest, you need to do the same. Good luck... :)

    1Reply
  • Adam Johnson
    Rental Property Investor · Holley, NY · Member since 2011 · 507 posts · 347 votes
    13y

    I think you have already decided with your gut, trust it. Instinct is a powerful force that I don't fully understand, but put a lot of faith in. I do recall one particular situation that I didn't listen to my gut instinct and it cost me $ 150,000, my business, and nearly my family. I still can't explain why my very strong gut feeling came about when I still had the opportunity to back away from the situation. In hindsight, I should have gone WITH it instead of AGAINST it.

    My two cents worth of opinion is that underneath it all, you and the seasoned investor have a fundamental difference between what is right/wrong and how the 2 of you prefer to do business. The opportunity may be a very good match for you, BUT if it is with the wrong person, it will not yield the result you wish for.

    I would gracefully bow out of the situation without burning bridges. Take some time and get to know the other investor better while keeping your eyes open for other opportunities. My bet is that as you get to know the other investor, you will start to see what your gut has already sensed.

    His methods may work for him, but if they don't work for you or what you are comfortable being involved with, then it won't be a successful venture.

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  • Andrew FidlerBusiness Member
    Real Estate Broker · Toledo, OH · Member since 2011 · 384 posts · 434 votes
    13y

    Aaron- I think you have a potential deal here...not anything I'd ever consider for partnership.

    "The only ship that never sails is the partnership"

    I've been in one partnership where we both had similar skills...energy, charisma, and not tons of money. Both of us were "mice" as the term goes. I've been in a very rewarding partnership with an elephant (lots money, slow to react, and preferring to remain in the background) for four years now. Partnerships have to satisfy one major requirement to even be considered by me...what are you bringing to the table that I cannot already do myself better, faster, or unable to contract out cheaper. I REALLY am sensitive to the fact that a partner is an equity holder...you can't fire them. I ended up buying out my mouse/mouse partnership years back and it was a good decision for both of us.

    What exactly is this other investor bringing to the partnership? All I see is him having some properties he wants to get rid of.

    Now- I've turned many of theses deals down over the years...I like to look at it like all of us investors are sharks...we know what things are worth and we will take as much as we can get, which is why we buy foreclosures and flip retail. The main thing is with proper diligence you can never be take advantage of, and with mutual respect and proper caution (I would never buy a property without a professional title search and title insurance) you can get a mutually beneficial sale.

    Conclusion- I would consider this fellow investor as having a deal...he should be willing to hold the note on said deal so he benefits. I would make sure you are getting the properties for a good discount and there is excellent upside on them when renovated and rent or whatever your exit strategy is. I see no reason why an investor who has been sitting on properties for three years (back taxes 3+ years) and didn't a) renovate them or b) pay their regular bills is worthy to be anything other than bought out so they can go invest in mutual funds where they can make 3% a year.

    [email protected]419-410-3836
    LaPlante Real Estate
    WebsiteView Page
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  • Aaron Yates
    OP
    Investor · Macomb, MI · Member since 2013 · 654 posts · 115 votes
    13y

    Thank you everyone for you posts. My gut instantly told me to back away. The back taxes alone total over $20,00 for the 3 properties.

    His purchase costs according to public record were over $30,000 plus whatever holding costs he has incurred. I should have put these numbers in there in the beginning.

    So in regards to a profit Bill Gulley, I don't see how he could profit. I think he's more looking at just taking the loss by someone buying them or POSSIBLY getting them rehabbed and rented and start paying the debt. This brings a point that another person on here posted about. I expect then he would want me to split the debt he has incurred.

    I wasn't looking for someone to make a decision for me. I just wanted to see if I was maybe taking it the wrong way after finding out the debt attached to the properties.

    There is one possibility that the city didn't update the tax info after he bought them in 2011 and 2012 but I own properties in the same city and my property tax info has been updated since after my last purchase in August 2012.

    But the county records still show delinquent taxes. When I get home I can purchase the statements online for $2 a piece and see if the city records match the county.

    The proposal from him was to be a partner do fund the rehab and then we split rents or he will sell them to me at a wholesale price. But the thing is, the money he paid for the properties which are all 2 bedrooms, is more than I pay for 3 bedroom houses in the same city.

    The easiest way for me to stand down is because I don't want 2 bedroom houses in my portfolio right now. So I can use that as my "out" and still build a rapport with him.

    So if anyone thought I was looking for a decision maker, I apologize. Sometimes it's good to get a third party opinion so a situation isn't taken the wrong way. Everyone looks at things differently. But I see this as him dumping these "overpaid", "will be over budget rehab" properties on me hoping I am not very well versed in researching properties.

    This isn't the first time I have had a management company try this, and in the same city. But last time it was a Management company out West in Nevada or Arizona instead of locally.

    I do want to call him still and see if I can get some reasoning of what his intentions really are and if he gives me the truth on what's going on with them. Maybe it was a test of my skills.. that would be the good way to look at it, or maybe he was trying to get me into a sucker deal.

    In any case, this is only thoughts and opinions. I could speculate all day on his real intentions until I talk to him again.

    Thanks again for you responses

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  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    13y

    Aaron Yates I have been in several joint deals if you will. The people who you partner or joint venture with matter. As a lawyer I can write you a great contract that will help you win in court, but it is only as good as the person who you are dealing with. You dont want to buy a lawsuit or a bad reputation. If you dont pay your taxes or fix your properties up something is dreadfully wrong. It may be bad decision making or it may be bad character, but either way I would not partner. You can buy from him, you can give him advice, but I would not team up. You are known by the company you keep.

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  • Aaron Yates
    OP
    Investor · Macomb, MI · Member since 2013 · 654 posts · 115 votes
    13y

    UPDATE:

    Well I drove by the houses today to see what thu looke like. two of the three need to just be tore down... unless someone wants to put $30,000 into them. And one is so small, no parking or yard... and needs about $10,000 into and it may get $650 a month rent tops.

    Ill be calling him tomorrow because now I want to see of he is going to be honest with me.

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  • Andrew FidlerBusiness Member
    Real Estate Broker · Toledo, OH · Member since 2011 · 384 posts · 434 votes
    13y

    Glad to hear they were simple deals to evaluate and pass on. I work in the ypsi Ford Rawsonville plant...drive up from Toledo daily. You ever have time for lunch south of warren?

    [email protected]419-410-3836
    LaPlante Real Estate
    WebsiteView Page
    0Reply
  • Aaron Yates
    OP
    Investor · Macomb, MI · Member since 2013 · 654 posts · 115 votes
    13y

    I work in Farmington Hills when Im not traveling. Ill have to see what the distance is. Maybe meet up sometime for sure.

    Im definitely lookimg to connect with some honest local people.

    0Reply
  • Ron Walraven
    Investor · Troy, MI · Member since 2012 · 38 posts · 17 votes
    13y

    Hello Aaron

    Call me. Info is online.
    Ron Walraven
    Troy Mi

    0Reply
  • Aaron Yates
    OP
    Investor · Macomb, MI · Member since 2013 · 654 posts · 115 votes
    13y

    @ron walraven, My agent is actually out of the same office as you. Been the best agent Ive had in all my investing. Neil Mellendorf.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    13y

    Even if he spills his guts and tells you everything and is totally truthful, still keep in mind his actions have spoken as well. By profit I mean any benefit. I agree with Jerry, take it from there....good luck! :)

    0Reply
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