I am in the beginning stages of investing in RE in the Baltimore market via fix and flips. I am planning on getting started with a partner who I have a working relationship with and trust. That said, I still want to protect my interests in the future. We are currently in the process of setting up a LLC with the intention of splitting profits 50/50. We are securing financing, viewing properties, and plan on pulling the trigger soon. I plan to have an agreement written up by an attorney to protect both sides, and would like some input on what to suggest/look for to be included in the agreement. A few more details..
- - We both have a background in construction and is the aspect of the flip I feel most comfortable with. We will have no mark up on construction as we will manage labor/subs/material directly.
- - We have established roles for starting out. This could obviously change over time but for the first few we are set.
- - Neither of us will be paid for the process, instead taking money only on the back end (if at all), while rolling most of the money into additional flips.
I would like to hear input from others who have had similar arrangements with partners and the pros and cons they have encountered when doing so. I would like to protect my interest in this partnership while also keeping options open for other avenues both legally and financially.
why do you have a partnership? why not do it by yourself? what does your partner bring to the table that you do not?
Account Closed - I currently am still working a full time job. My partner brings easier access to private money, the direct access to skilled cheap labor (that I trust) and I know will 'hustle' just as much as I do to quickly turn around any property we purchase together in 30-60 days. My immediate goal is not to maximize every penny I can, it is to develop systems that I can scale relatively quickly and having a partner will help maximize accountability while maintaining flexibility. Cutting out the O&P of the contractor markup on the project, will help minimize the hit of splitting profits as well.
By developing a partnership, I plan to have verbiage in the agreement, opening me up to pursure additional opportunities as well.
better question, why does he need you?
Partners and friends soon become X partners and X friends.
You just might need some support form someone who will guide you in the right direction.
Oh, do you know how much it will cost you to have a lawyer write up your agreement? You can get if free if look around.
If you are going to do some deals together, do it one deal at time with a hand shake (and written) agreement.
See how the first one works out. In a partnership there is always thoughts that someone is not doing their fair share.......they get messy.
This is a great business, it has lots of moving parts that you need to be aware of them.
Lots thrills and negative aspects (bad tenants, bad loans, expensive lawyers, unreasonable housing inspectors, rent court, housing court, unproductive real estate agents, IRS, recording keeping.....etc.)
And those THRILLS........ the elation and joy of sitting at the settlement table and watching, almost in slow motion, as the title officer slides your assignment check across the table, you slowly and with high anticipation turn it over and read your name and the dollar amount. You just made $33,000! WOW!
So the question is; was it worth? What did you have to do?
- Lots of marketing to find a motivated sellers
- Negotiating with seller
- Controlling the property
- Making full disclosures
- Dealing with profit issues and the seller
- Finding a buyer (assignee)
- Writing a contract offer
- Applying for a loan
- Taking possession
- Clean up or renovation
- Getting to the settlement table
Yep, it is a great business. Where else can you start a business without money, without a commercial office, without overhead, without a college education? No need to dress up, no meetings and you can work from home in your PJ's.
Your most important assets is your energy, negotiating skills and knowledge of contracts and the ability to make wise and profitable decisions.
Thanks for the words Charles. Your description of the process is precisely why I want to do it and always have. Working hard for myself and under pressure is something I thrive in.
My partnership, mentioned in the beginning, is a way to get started and have help with the responsibilities getting things moving while maintaining a full time job. It doesn't mean every deal will need a partner or that I plan to lock myself into it for the extended future.
That was the point of my original post. How do I form a partnership for a handful of deals to get things started but still leave myself open for other potential opportunities. Am I over thinking it?
Again, thanks for the words.