Does partnering on real estate deals hurt your bankability?

4 Replies

Hello BPers,

Thanks to the advice and inspiration from these forums I am now at the point where I would like to partner on some deals. Because these deals are relatively small, I assume they will be recourse loans. If we take out a loan together on a property, does splitting the income while each assuming joint and several liability escalate our respective DTI ratios fast enough to quickly disqualify both partners from future recourse loans?

If partnering does affect the DTI negatively, how do other investors handle this situation?

Originally posted by @Mark Costa :

Hello BPers,

Thanks to the advice and inspiration from these forums I am now at the point where I would like to partner on some deals. Because these deals are relatively small, I assume they will be recourse loans. If we take out a loan together on a property, does splitting the income while each assuming joint and several liability escalate our respective DTI ratios fast enough to quickly disqualify both partners from future recourse loans?

If partnering does affect the DTI negatively, how do other investors handle this situation?

 What's the motivation to "partner"? I routinely tell even married couples not to buy investment properties together (example from 10 seconds ago). You posted this in the mortgage subforum, so I assume that's the perspective you're interested in. There are zero advantages of "partnering," and many disadvantages, including DTI like you just mentioned.

If it's an issue of capital and down payment funds, take turns being each other's private lender. Borrowed funds can 100% be used as down payments, provided they are secured by real estate other than the property being purchased.

@Mark Costa Obtaining a recourse loan with another investor won't slow down your growth rate, even with fluctuations in DTI ratios. Many times banks will start to count rental income as fixed income (usually around 2 years of solid rental return), which will further reduce your debt liability. I am sure you will make smart investment moves that will produce positive cash flow. Hence you should not run into any issues. 

Work with a small local bank and inform them how you and your partner plan to create sustainable, positive cash flowing properties. Have a solid business model that is well thought out. This will build trust over time with your loan officer and allow for more creative loans when the right time is needed for getting the next big investment deal.

Best of luck! 

Partnering when it comes to qualifying for a loan can help or hurt you. It really depends on the numbers. If you have excessive debt, and limited income, but a solid down, and your partner has no down, but low debt and higher income, it could be a win-win. Key word: COULD.

DTI is an overall calculation of your combined debts vs. your combined income, so there is no real answer as to whether this will help or hurt you without looking at the numbers independently, and then joint.

Thank you for the responses. As much as I hate to hear the word "could", I am not surprised that like everything important in life, the answer is complicated.

As to why I want to partner - because it seems to be the fastest way to leverage hustle, knowledge, and money to build a reputation as someone to partner with on larger deals. Even if a partner and I take turns playing bank for one another, I am still limited to doing deals up to the cash I have. Even great BRRRs tie up cash.