Partner or Borrow from him?

Question

So it's pretty funny how I read on BP that once you get started in real estate investers will find you. Today I had a co-worker who told me he's been meaning to speak to me and he is very interested in what I'm doing in real estate. He has 30k sitting idle and he wants to do something with it. I have only bought one property so far, am working on numbers 2 and 3 currently. The strategy is buy and hold long term. Minimal rehab. He is unsure whether he would prefer to find a way to partner with me or to simply get a decent rate of return on his money that is currently sitting idle. My initial thought is to take the loan from him though he's a pretty solid guy as far as a possible partner would go on a property or two. Anyway, I was hoping to get thoughts here on which way you would consider first if you were me? Please also tell me if you went that way how you would go about structuring either scenerio. I'm curious what interest rate to offer him if it were simply a loan. I'm also curious whether to go in 50/50 on everything if it were a partnership, or perhaps just use his funds for the down payment on the properties since he would plan to be pretty uninvolved in the buying process etc.

Thanks,

Shawn

Thanks,

Shawn

J Scott · Answer

What does he bring to the table other than the money that you can't do yourself or hire someone to do?  If nothing, then a loan is the way to go.  Unless he has some specific skill set, experience or connections that you can't get by hiring it out, I generally don't see any good reason to partner with someone, especially when you're relatively new to investing.

Shawn S. · Answer

Thanks guys

David Beard · Answer

Great points made.  I'll mention, for your future reference, that partnering might make sense in these couple of cases:

* If you need/want someone to put up 100% of all costs on a flip (purchase, rehab, carrying costs), while remaining completely passive in the deal, then offering them 40-50% of the profits is reasonable and common.

* If you get to the point where you want to purchase a larger apartment or commercial property and need more cash for the down payment (or enhanced credit support), then partner(s) can enable you to obtain bank financing and purchase a much larger asset.

J Scott · Answer

There's no "typical" when it comes to lending rates, but you're probably looking at something between 8-15% annualized .  Factors will include how much experience you have, what other investing options he has, how much risk is involved in the deal, etc.

Shawn S. · Answer

@J  Scott @Alex Baev

Thanks guys, seems like solid advice.  I'll see if I can go that route and continue obtaining properties.

When it is someone you know, what is the interest rate range you would consider to be a good offer starting point?

Alex Baev · Answer

Very hard not to agree with everything J Scott said, in this thread and another one on partnering a bit earlier

Everything in business can be looked at in terms of assets vs. liabilities. A parter in this case presents an extra liability and a questionable asset, if any

One reason new investors - myself included - may look for partners is to help them push and overcome the "fear" of jumping into that first deal or opportunity. You don't seem to have that problem, so just take the money from him now and in the future, and see what else he could bring to the table that's indispensable

Partner or Borrow from him?

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