New Partnership Model

New Partnership Model

Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes

I'd love to get some feedback and hear your thoughts on the investing model that I am planning on ramping up this year.

Let me give you some background for context and to help you understand why I am moving in this direction with investing this year. 

I have been investing in real estate for the past 15 years but more actively for the past 10 years. People started to ask me to help them learn how to invest so I started coaching new investors over the past 7 years on how to start investing in real estate. I would charge them $5,000 with the ability for them to earn back $2,500 and I'd have a call with them every other week to guide them on how to find deals and money lenders and how to get the properties fixed up and get them refinanced, etc. About 90% of my coaching students bought properties and increased their net worth on average of $100,000 the year we worked together. A mentor of mine told me that I was charging too little for the amount of value I was providing. So I increased my rate to $10,000 with the ability of my coaching students to earn back $5,000 if they completed their homework in betweeen coaching sessions that was geared towards helping them meet their real estate goals. The results of my students were about the same and they would create about $100,000 of increased net worth during the coaching program. My mentor told me I was still charging too low for the value I was providing. 

Towards the end of last year, one of my buddies contacted me and told me his accountant told him that he needed to buy some real estate to lower his tax bill. I shared with him some ideas on how to buy undervalued real estate and he basically told me that he would rather just partner with me and provide the money and have me find and manage the investment and then split the profits.  So I found and purchased 3 undervalued properties from wholesalers and we are just finishing up the 3rd one. Each property is estimated to create about $70,000 of profit over the next 3 years.  He has deposited $100,000 into the business account. That covers the down payment for the purchase, the rehab, and the $18,000 for reserves for the account, and $5,000 for me for each property for the time and work involved. That $5,000 is part of my portion of the 50% of the profits and will be deducted from my payout when the property is sold. 

The property will be rented out on a 3-year lease option and will be either sold to the tenant buyer or sold on the market if the tenant decides not to exercise the option.  

The money partner on these deals will bring in about $35,000 to $50,000 for each deal and the expected IRR is around 25%-35% each year for the 3 year period essentially doubling their money in 3-4 years.

So rather than focusing on picking up a couple of coaching clients this year, I think I am just going to focus on finding money partners to buy deals with.  I already have the knowledge, experience, and systems in place to do about 20 properties this year. So I think I am going to  shift my focus away from coaching and more towards partnering.

I'd love to get hear some of your thoughts and get some of your feedback. 

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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
1y
Quote from @Shiloh Lundahl:

@V.G Jason it seems like you don’t see that this type of partnership would be enticing for people who want to be passive investors.  Walk us through one of the kinds of deals you do with partners that are enticing for them. 


I don't work with partners, because I don't need to. I also don't post strategies online to drum up business so others can latch on and see what services I am subtly selling. Because, I don't have anything I am selling.

If someone asked me for advice on "passive" investing. I'd tell them passive investing is a farce, you really want active investing with systems in place.

But if they wanted less control in investments---go the route of equities, fixed income like tbills or CDs, mortgage notes syndicators, REITs, possibly RE syndicators but do your diligence especially now, and even crypto cause that's an investment with little control.

I would do all of those prior to giving up 50% upside on a physical RE investment to someone who has little risk, and is offering their time. I'd rather people offer their time through contractual work that raises the ceiling of my physical investment yet I keep all the equity.

Otherwise, why would I risk my capital?
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  • Jaycee GreenePro Member
    Real Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
    1y
    Quote from @Shiloh Lundahl:

    I'd love to get some feedback and hear your thoughts on the investing model that I am planning on ramping up this year.

    Let me give you some background for context and to help you understand why I am moving in this direction with investing this year. 

    I have been investing in real estate for the past 15 years but more actively for the past 10 years. People started to ask me to help them learn how to invest so I started coaching new investors over the past 7 years on how to start investing in real estate. I would charge them $5,000 with the ability for them to earn back $2,500 and I'd have a call with them every other week to guide them on how to find deals and money lenders and how to get the properties fixed up and get them refinanced, etc. About 90% of my coaching students bought properties and increased their net worth on average of $100,000 the year we worked together. A mentor of mine told me that I was charging too little for the amount of value I was providing. So I increased my rate to $10,000 with the ability of my coaching students to earn back $5,000 if they completed their homework in betweeen coaching sessions that was geared towards helping them meet their real estate goals. The results of my students were about the same and they would create about $100,000 of increased net worth during the coaching program. My mentor told me I was still charging too low for the value I was providing. 

    Towards the end of last year, one of my buddies contacted me and told me his accountant told him that he needed to buy some real estate to lower his tax bill. I shared with him some ideas on how to buy undervalued real estate and he basically told me that he would rather just partner with me and provide the money and have me find and manage the investment and then split the profits.  So I found and purchased 3 undervalued properties from wholesalers and we are just finishing up the 3rd one. Each property is estimated to create about $70,000 of profit over the next 3 years.  He has deposited $100,000 into the business account. That covers the down payment for the purchase, the rehab, and the $18,000 for reserves for the account, and $5,000 for me for each property for the time and work involved. That $5,000 is part of my portion of the 50% of the profits and will be deducted from my payout when the property is sold. 

    The property will be rented out on a 3-year lease option and will be either sold to the tenant buyer or sold on the market if the tenant decides not to exercise the option.  

    The money partner on these deals will bring in about $35,000 to $50,000 for each deal and the expected IRR is around 25%-35% each year for the 3 year period essentially doubling their money in 3-4 years.

    So rather than focusing on picking up a couple of coaching clients this year, I think I am just going to focus on finding money partners to buy deals with.  I already have the knowledge, experience, and systems in place to do about 20 properties this year. So I think I am going to  shift my focus away from coaching and more towards partnering.

    I'd love to get hear some of your thoughts and get some of your feedback. 

     Hey @Shiloh Lundahl. You're basically forming GP/LP partnerships where you provide maybe a little cash but mostly your SME and the partner provides most of the money. I didn't see where you're going to borrow any money in the projects, which would improve your returns even more AND allow you to do more projects. Have you done a proforma on one of these deals?

  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    1y

    @Shiloh Lundahl What are you contributing to these partnerships to acquire 50% of the upside? Property identification, construction management/property management? Loan Guarantee? Contributing a portion of the equity? What fees are you collecting if any besides the $5k/per property? It's difficult to say if the partnership structure makes sense for all parties without knowing your exact involvement. 

  • Shiloh LundahlPro Member
    OP
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    1y

    @Stuart Udis and @Jaycee Greene The way that I set it up is as follows. 

    1. We sign the partnerships agreement which includes verbiage defining roles and profit share. We share the profits and split losses if any 50/50.  The money partner will provide the money for the down payment, the repairs, the reserves in the account and the $5,000 that goes to me which is a part of my 50% of the profits.

    2. I identify a property that is under market value that after it is fixed up, it has between $40,000 to $50,000 worth of equity.  

    3. I purchase the property in the name of the LLC with a hard money lender and use the money partners money for the down payment and the repairs.

    4. I work with our project manager to get the property fixed up according to the specific property which may be fixing it a lot or a little. I get rehab draws from the hard money lender to reimburse for the repairs.

    5. We find a tenant buyer to do the lease option who also pays on option fee of between $4,000 and $6,000 depending on the value of the property.

    6. I get a DSCR loan on the property and we try to suck out as much money as we can to leverage the property at 75% of the ARV. This will probably necessitate leaving $20,000 to $30,000 into the property.

    7. Anything over and above the $10,000 left into the account after paying me the $5,000 goes back to the money partner. 

    8. I will manage the property through my assistant. Management is pretty low since the properties will be on lease options and the tenants take care of the fixes and most anything that comes up with the house.  It usually takes a quarter of the time to manage a lease option property versus a regular rental.  The payments for the management of the property and the book keeping will come out of the cash flow of the property.

    9. We sell the property to the tenant buyer with minimal closing costs.

    Here are the numbers for our most recent project:

    Purchase price 138k

    Rehab around 40k 

    Closing costs 7k

    Carrying costs 5k

    Second closing costs 7k

    All in 197k

    ARV 245k

    Lease option fee that comes to us 4k

    Loan amount 180k

    Money left into the property 17k in the property, 10k in the account, 5k to me

    Sales price in 3 years 270k

    Loan balance in 3 years about 170k

    Cash flow 140 a month.

    Estimated profit over the 3 years is around 70k. 

    The total amount left in by the money parter would be 32k and the estimate profit would be 35k over a 3 year period of time or a 36% IRR over 3 years. Of course the sale of the property is dependent on the tenant buyer exercising the option. however, if they don't exercise the option then we can just sell it if we want to or we would put in the property another tenant buyer with another option. It would just depend on where the numbers were in 3 years.

    This is the way I structure the partnership.

  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    1y

    It sounds like you are guaranteeing the loan, but besides that the responsibilities don't appear to be that different from when you were coaching for a $5K fee. Under the revised iteration you are still collecting the fee and 50% of the property upside. If I were in the shoes of the LP, I would want to see you invest capital alongside and source true bank debt rather than hard money. It's less expensive and improves upon the properties performance.  Even with those adjustments, 50% seems steep if you are sourcing out construction management and property management to 3rd parties. I could understand a more substantial ownership interest if those services were included as part of your responsibility, so perhaps you look at ways to contribute more services to the partnership that can reduce the partnership costs.

    Other component that doesn't excite me is the asset type and transactional fee assumptions. No real barriers associated with buying "under value" sub $250K houses. Also, your transactional fees appear to be too light which only makes the profits more lean....$5k carrying costs between debt service, builder risk, general liability, taxes and insurance.....and $7K for the exit. You should assume arms length sale in the sale/exit assumption and in this price point expect in addition to broker fees to be some repair concessions and likely even a seller assist. 

  • Shiloh LundahlPro Member
    OP
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    1y

    Hi@Stuart Udis. Are you very familiar with how lease options work?

  • Lender · Long Beach, CA · Member since 2013 · 496 posts · 296 votes
    1y

    Love this business model. I used to do this in Portland OR, for flipping. Most investors will jump at the chance to do this. 

  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    1y

    @Shiloh Lundahl Yes, but I would never underwrite a deal with the assumption the tenant will acquire the property. I would always underwrite as if the property has to be sold in an arms length transaction. Your margins shrink considerably if you you must go to market with these homes. 

  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    1y

    You can also reduce your transactional costs by using a bank construction to permanent loan with an earn out. Should be achievable with the LTC/LTV you are quoting. Will reduce transactional waste significantly.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    1y

    great alternative to small time investors with limited capital..

    doing 20 though would be quite a bit of work..

    selling coaching has basically zero liability when you start to manage investor capital your liablity goes up a ton in the unlikely event of a water landing..

    Also one thing to benefit this model is you have an LLC the limited partner can take most if not all the depreciation and you take little or none.. LLC's allow unequal distribution of profit and tax benefits.. thats how I did larger deal were my LPS were not required to sign on large loans.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    1y

    ps one investor one llc then there is no securities issues thats a benefit /  but now you have 20 companies to manage 20 sets of books 20 tax returns etc. 

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    1y

    so based on 20 seperate companies.. what I would do is take no ownership since you dont need tax write offs.. just set it all up and give yourself a management contract and spell out the terms in the management contract.. get to the same place without doing the books. 

  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    1y

    These deals are just not enticing for investors if they do their proper diligence. Too many issues.

    And before anyone says they don't have time, let me stop you. They have time, they just need to shift their priorities.

  • Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
    1y
    Quote from @Shiloh Lundahl:

    @Stuart Udis and @Jaycee Greene The way that I set it up is as follows. 

    1. We sign the partnerships agreement which includes verbiage defining roles and profit share. We share the profits and split losses if any 50/50.  The money partner will provide the money for the down payment, the repairs, the reserves in the account and the $5,000 that goes to me which is a part of my 50% of the profits.

    2. I identify a property that is under market value that after it is fixed up, it has between $40,000 to $50,000 worth of equity.  

    3. I purchase the property in the name of the LLC with a hard money lender and use the money partners money for the down payment and the repairs.

    4. I work with our project manager to get the property fixed up according to the specific property which may be fixing it a lot or a little. I get rehab draws from the hard money lender to reimburse for the repairs.

    5. We find a tenant buyer to do the lease option who also pays on option fee of between $4,000 and $6,000 depending on the value of the property.

    6. I get a DSCR loan on the property and we try to suck out as much money as we can to leverage the property at 75% of the ARV. This will probably necessitate leaving $20,000 to $30,000 into the property.

    7. Anything over and above the $10,000 left into the account after paying me the $5,000 goes back to the money partner. 

    8. I will manage the property through my assistant. Management is pretty low since the properties will be on lease options and the tenants take care of the fixes and most anything that comes up with the house.  It usually takes a quarter of the time to manage a lease option property versus a regular rental.  The payments for the management of the property and the book keeping will come out of the cash flow of the property.

    9. We sell the property to the tenant buyer with minimal closing costs.

    Here are the numbers for our most recent project:

    Purchase price 138k

    Rehab around 40k 

    Closing costs 7k

    Carrying costs 5k

    Second closing costs 7k

    All in 197k

    ARV 245k

    Lease option fee that comes to us 4k

    Loan amount 180k

    Money left into the property 17k in the property, 10k in the account, 5k to me

    Sales price in 3 years 270k

    Loan balance in 3 years about 170k

    Cash flow 140 a month.

    Estimated profit over the 3 years is around 70k. 

    The total amount left in by the money parter would be 32k and the estimate profit would be 35k over a 3 year period of time or a 36% IRR over 3 years. Of course the sale of the property is dependent on the tenant buyer exercising the option. however, if they don't exercise the option then we can just sell it if we want to or we would put in the property another tenant buyer with another option. It would just depend on where the numbers were in 3 years.

    This is the way I structure the partnership.

    .
    With a 50/50 split, who makes the decisions when things go south?

    Many different partners equals many chances for litigation. 

    Real estate, like other things has a snowball effect. Things snowball on the way down.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    1y
    Quote from @Ken M.:
    Quote from @Shiloh Lundahl:

    @Stuart Udis and @Jaycee Greene The way that I set it up is as follows. 

    1. We sign the partnerships agreement which includes verbiage defining roles and profit share. We share the profits and split losses if any 50/50.  The money partner will provide the money for the down payment, the repairs, the reserves in the account and the $5,000 that goes to me which is a part of my 50% of the profits.

    2. I identify a property that is under market value that after it is fixed up, it has between $40,000 to $50,000 worth of equity.  

    3. I purchase the property in the name of the LLC with a hard money lender and use the money partners money for the down payment and the repairs.

    4. I work with our project manager to get the property fixed up according to the specific property which may be fixing it a lot or a little. I get rehab draws from the hard money lender to reimburse for the repairs.

    5. We find a tenant buyer to do the lease option who also pays on option fee of between $4,000 and $6,000 depending on the value of the property.

    6. I get a DSCR loan on the property and we try to suck out as much money as we can to leverage the property at 75% of the ARV. This will probably necessitate leaving $20,000 to $30,000 into the property.

    7. Anything over and above the $10,000 left into the account after paying me the $5,000 goes back to the money partner. 

    8. I will manage the property through my assistant. Management is pretty low since the properties will be on lease options and the tenants take care of the fixes and most anything that comes up with the house.  It usually takes a quarter of the time to manage a lease option property versus a regular rental.  The payments for the management of the property and the book keeping will come out of the cash flow of the property.

    9. We sell the property to the tenant buyer with minimal closing costs.

    Here are the numbers for our most recent project:

    Purchase price 138k

    Rehab around 40k 

    Closing costs 7k

    Carrying costs 5k

    Second closing costs 7k

    All in 197k

    ARV 245k

    Lease option fee that comes to us 4k

    Loan amount 180k

    Money left into the property 17k in the property, 10k in the account, 5k to me

    Sales price in 3 years 270k

    Loan balance in 3 years about 170k

    Cash flow 140 a month.

    Estimated profit over the 3 years is around 70k. 

    The total amount left in by the money parter would be 32k and the estimate profit would be 35k over a 3 year period of time or a 36% IRR over 3 years. Of course the sale of the property is dependent on the tenant buyer exercising the option. however, if they don't exercise the option then we can just sell it if we want to or we would put in the property another tenant buyer with another option. It would just depend on where the numbers were in 3 years.

    This is the way I structure the partnership.

    .
    With a 50/50 split, who makes the decisions when things go south?

    Many different partners equals many chances for litigation. 

    Real estate, like other things has a snowball effect. Things snowball on the way down.


    when I do my deals the money always has unilateral decisions.. If they dont like what we are doing they can quit with a simple 60 day notice and kick me to the curb..
  • Shiloh LundahlPro Member
    OP
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    1y

    @Ken M. I would be the one who makes the decisions. Remember, we would split the profits as well as any losses. And it is just one investor per deal. 

  • Shiloh LundahlPro Member
    OP
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    1y

    @V.G Jason it seems like you don’t see that this type of partnership would be enticing for people who want to be passive investors.  Walk us through one of the kinds of deals you do with partners that are enticing for them. 

  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    1y
    Quote from @Shiloh Lundahl:

    @V.G Jason it seems like you don’t see that this type of partnership would be enticing for people who want to be passive investors.  Walk us through one of the kinds of deals you do with partners that are enticing for them. 


    I don't work with partners, because I don't need to. I also don't post strategies online to drum up business so others can latch on and see what services I am subtly selling. Because, I don't have anything I am selling.

    If someone asked me for advice on "passive" investing. I'd tell them passive investing is a farce, you really want active investing with systems in place.

    But if they wanted less control in investments---go the route of equities, fixed income like tbills or CDs, mortgage notes syndicators, REITs, possibly RE syndicators but do your diligence especially now, and even crypto cause that's an investment with little control.

    I would do all of those prior to giving up 50% upside on a physical RE investment to someone who has little risk, and is offering their time. I'd rather people offer their time through contractual work that raises the ceiling of my physical investment yet I keep all the equity.

    Otherwise, why would I risk my capital?
  • Shiloh LundahlPro Member
    OP
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    1y

    @V.G Jason Wow, you don’t work partners. That’s great for you. I’m just not sure why you would give your perspective or advice about partnerships to people who do work with partners

    The majority of deals that I do and have done have been with partners. I built a portfolio of 250 units (80 Single family, 30 in multifamily, a commercial building, and 100 in mobile home parks) with a partner. And various other projects and deals with other partners. I have found a ton of value in partnerships. I’m just curious why you commented on a thread about partnerships if you don’t do them. Maybe I should have stated in the original post, if you don’t like partnerships or don’t do partnerships then don’t feel the need to comment.

    And yes, every post I make, whether it’s on BiggerPockets, Instagram, or my YouTube channel about real estate sells my services. See what I just did there. Smooth like butter. King of subtlety. 

  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    1y
    Quote from @Shiloh Lundahl:

    @V.G Jason Wow, you don’t work partners. That’s great for you. I’m just not sure why you would give your perspective or advice about partnerships to people who do work with partners

    The majority of deals that I do and have done have been with partners. I built a portfolio of 250 units (80 Single family, 30 in multifamily, a commercial building, and 100 in mobile home parks) with a partner. And various other projects and deals with other partners. I have found a ton of value in partnerships. I’m just curious why you commented on a thread about partnerships if you don’t do them. Maybe I should have stated in the original post, if you don’t like partnerships or don’t do partnerships then don’t feel the need to comment.

    And yes, every post I make, whether it’s on BiggerPockets, Instagram, or my YouTube channel about real estate sells my services. See what I just did there. Smooth like butter. King of subtlety. 

    I am free to give my perspective on the benefits or drawbacks on doing partnerships, because I've done my diligence and learned on the most often cases-- it's not worth it.

    All you've done is prove that with your terrible offering.

    And congrats on the volume of deals you've done with partnerships, it doesn't make it sound. Given your original and terrible offering, I see why you love them. As much as you push the narrative of "passive" investing and this being a suitable option-- it just exposes the fact you're a predator on the uninformed.

    I also gave you my feedback on what I would do if I was contemplating a partner, yet seeking "passive' investments. Yet rather than dispute them, you'd rather shine light on my disdain of "partnerships". You couldn't refute how deplorable that offering idea was---quite telling.

    This is an open forum, I am also able to give my opinion on partnerships just like you are. If there is an issue with that, hit up a moderator or the owner.

    If you think you can regulate posts and feedback, good luck. Comes off a lot like @Johnathon Greene guy who would force his narrative and get upset with anyone with a carbon copy post seeking advice among other things. All just to promote their business.

  • Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes
    1y
    Quote from @Shiloh Lundahl:

    @V.G Jason Wow, you don’t work partners. That’s great for you. I’m just not sure why you would give your perspective or advice about partnerships to people who do work with partners

    The majority of deals that I do and have done have been with partners. I built a portfolio of 250 units (80 Single family, 30 in multifamily, a commercial building, and 100 in mobile home parks) with a partner. And various other projects and deals with other partners. I have found a ton of value in partnerships. I’m just curious why you commented on a thread about partnerships if you don’t do them. Maybe I should have stated in the original post, if you don’t like partnerships or don’t do partnerships then don’t feel the need to comment.

    And yes, every post I make, whether it’s on BiggerPockets, Instagram, or my YouTube channel about real estate sells my services. See what I just did there. Smooth like butter. King of subtlety. 


     Not smooth, blatantly self serving. Read your own posts objectively, your blowing your own horn.

    I'm not attacking you so don't get your panties in a wad.

    You're selling, plain n simple. Selling is a very important service in the world, without sales people things wouldn't get sold.

    Read VG's other posts, he's provided IMMENSE value on this forum with genuine information and never blowing his horn. He understands macroeconomic, business cycles etc.

    Its okay for people to simply recognize when folks are selling something, so relax

  • Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
    1y
    Quote from @Jay Hinrichs:
    Quote from @Ken M.:
    Quote from @Shiloh Lundahl:

    @Stuart Udis and @Jaycee Greene The way that I set it up is as follows. 

    1. We sign the partnerships agreement which includes verbiage defining roles and profit share. We share the profits and split losses if any 50/50.  The money partner will provide the money for the down payment, the repairs, the reserves in the account and the $5,000 that goes to me which is a part of my 50% of the profits.

    2. I identify a property that is under market value that after it is fixed up, it has between $40,000 to $50,000 worth of equity.  

    3. I purchase the property in the name of the LLC with a hard money lender and use the money partners money for the down payment and the repairs.

    4. I work with our project manager to get the property fixed up according to the specific property which may be fixing it a lot or a little. I get rehab draws from the hard money lender to reimburse for the repairs.

    5. We find a tenant buyer to do the lease option who also pays on option fee of between $4,000 and $6,000 depending on the value of the property.

    6. I get a DSCR loan on the property and we try to suck out as much money as we can to leverage the property at 75% of the ARV. This will probably necessitate leaving $20,000 to $30,000 into the property.

    7. Anything over and above the $10,000 left into the account after paying me the $5,000 goes back to the money partner. 

    8. I will manage the property through my assistant. Management is pretty low since the properties will be on lease options and the tenants take care of the fixes and most anything that comes up with the house.  It usually takes a quarter of the time to manage a lease option property versus a regular rental.  The payments for the management of the property and the book keeping will come out of the cash flow of the property.

    9. We sell the property to the tenant buyer with minimal closing costs.

    Here are the numbers for our most recent project:

    Purchase price 138k

    Rehab around 40k 

    Closing costs 7k

    Carrying costs 5k

    Second closing costs 7k

    All in 197k

    ARV 245k

    Lease option fee that comes to us 4k

    Loan amount 180k

    Money left into the property 17k in the property, 10k in the account, 5k to me

    Sales price in 3 years 270k

    Loan balance in 3 years about 170k

    Cash flow 140 a month.

    Estimated profit over the 3 years is around 70k. 

    The total amount left in by the money parter would be 32k and the estimate profit would be 35k over a 3 year period of time or a 36% IRR over 3 years. Of course the sale of the property is dependent on the tenant buyer exercising the option. however, if they don't exercise the option then we can just sell it if we want to or we would put in the property another tenant buyer with another option. It would just depend on where the numbers were in 3 years.

    This is the way I structure the partnership.

    .
    With a 50/50 split, who makes the decisions when things go south?

    Many different partners equals many chances for litigation. 

    Real estate, like other things has a snowball effect. Things snowball on the way down.


    when I do my deals the money always has unilateral decisions.. If they dont like what we are doing they can quit with a simple 60 day notice and kick me to the curb..
    @Jay Hinrichs: That's the same way I do them. But I spell it out up front. Someone who wants to invest with me knows what they are getting into.

    In this case, I had to ask because the OP didn't state that and it leaves the impression the partner will have a say in the investment. But in the Op's case, the partner doesn't have a say which leads to upset partners, litigation and ultimately to failed investments. 
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    1y
    Quote from @Ken M.:
    Quote from @Jay Hinrichs:
    Quote from @Ken M.:
    Quote from @Shiloh Lundahl:

    @Stuart Udis and @Jaycee Greene The way that I set it up is as follows. 

    1. We sign the partnerships agreement which includes verbiage defining roles and profit share. We share the profits and split losses if any 50/50.  The money partner will provide the money for the down payment, the repairs, the reserves in the account and the $5,000 that goes to me which is a part of my 50% of the profits.

    2. I identify a property that is under market value that after it is fixed up, it has between $40,000 to $50,000 worth of equity.  

    3. I purchase the property in the name of the LLC with a hard money lender and use the money partners money for the down payment and the repairs.

    4. I work with our project manager to get the property fixed up according to the specific property which may be fixing it a lot or a little. I get rehab draws from the hard money lender to reimburse for the repairs.

    5. We find a tenant buyer to do the lease option who also pays on option fee of between $4,000 and $6,000 depending on the value of the property.

    6. I get a DSCR loan on the property and we try to suck out as much money as we can to leverage the property at 75% of the ARV. This will probably necessitate leaving $20,000 to $30,000 into the property.

    7. Anything over and above the $10,000 left into the account after paying me the $5,000 goes back to the money partner. 

    8. I will manage the property through my assistant. Management is pretty low since the properties will be on lease options and the tenants take care of the fixes and most anything that comes up with the house.  It usually takes a quarter of the time to manage a lease option property versus a regular rental.  The payments for the management of the property and the book keeping will come out of the cash flow of the property.

    9. We sell the property to the tenant buyer with minimal closing costs.

    Here are the numbers for our most recent project:

    Purchase price 138k

    Rehab around 40k 

    Closing costs 7k

    Carrying costs 5k

    Second closing costs 7k

    All in 197k

    ARV 245k

    Lease option fee that comes to us 4k

    Loan amount 180k

    Money left into the property 17k in the property, 10k in the account, 5k to me

    Sales price in 3 years 270k

    Loan balance in 3 years about 170k

    Cash flow 140 a month.

    Estimated profit over the 3 years is around 70k. 

    The total amount left in by the money parter would be 32k and the estimate profit would be 35k over a 3 year period of time or a 36% IRR over 3 years. Of course the sale of the property is dependent on the tenant buyer exercising the option. however, if they don't exercise the option then we can just sell it if we want to or we would put in the property another tenant buyer with another option. It would just depend on where the numbers were in 3 years.

    This is the way I structure the partnership.

    .
    With a 50/50 split, who makes the decisions when things go south?

    Many different partners equals many chances for litigation. 

    Real estate, like other things has a snowball effect. Things snowball on the way down.


    when I do my deals the money always has unilateral decisions.. If they dont like what we are doing they can quit with a simple 60 day notice and kick me to the curb..
    @Jay Hinrichs: That's the same way I do them. But I spell it out up front. Someone who wants to invest with me knows what they are getting into.

    In this case, I had to ask because the OP didn't state that and it leaves the impression the partner will have a say in the investment. But in the Op's case, the partner doesn't have a say which leads to upset partners, litigation and ultimately to failed investments. 
    Excellent point. And I overlooked this.

    This is an even worse offering then when I deemed it "terrible". This is dog ****. 
  • Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes
    1y

    My question would be what position is the LP in? Hmmmm?

    My years of Y Combinator meeting, pitched LP agreements etc. have helped me hone my BS meter, kitchy IG accounts n SM mean absolutely nothing.

    Also 250k houses really set off my BS meter.

    Shiloh you had a great opportunity to garner interest and engagement

  • Shiloh LundahlPro Member
    OP
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    1y

    Hey @Ken M. it has been awhile. I know you have been using a version of this model for awhile. I'd love to know how you structured your partnerships in the past and how you have altered the agreements over time and what situations led you to alter those agreements. 

    It would be great to meet up again some time. I'd love to get your feedback on how to change up my partnership contracts so that they set up expectations clearly and limit liability and obviously avoid any lawsuits. 

  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    1y

    @Shiloh Lundahl  No reason to get upset. V.G Jason merely pointed out what you are providing to the hypothetical partnership  can easily be performed through  contracted services with proper vetting and without having to give up 50% of the upside. Most individuals can originate the debt these projects require as well so its not as if your signature is opening the doors to properties these partners couldn't purchase on their own either.  You mention you would also share in losses, but you aren't investing any capital so poor performance would lead to your partner realizing a monetary loss before you.

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