Need ideas about how to partner with cash investor

5 Replies

Hey BP, I am in the works of starting my first REI project. My father in law is looking to partner with me, him bringing the cash, myself finding the deal and working it. What are some strategies and ways he could make money partnering with me? I keep hearing cut profits 50/50. What happens if we sell the house? If it is possible for him, should he completely pay off the house? Just looking to hear some strategies and ideas.

@Caleb Anderson You can structure any way you desire. Even though he is your father in law, it can't hurt to put terms into writing just in case tensions rise in the future. If it is a flip and he's bringing the cash but you're doing the labor, I think giving him 50% of profits may actually be excessive. Risk aside, bringing the cash to the deal is the easy part. Think of everything else you'll have to do while he would just be collecting his profit.

I would advise against him completely paying off in cash - especially since its your first deal. What if things go south? Mitigate losses by minimizing cash invested up front. Having him fund the down payment and maybe some rehab and then leveraging the rest of the property on a mortgage would make much more sense in my opinion.

@Marshall Leipprandt Thanks Marshall! The point of it being risky or not, it's the easy part, is a good point. My FIL and I have a great relationship, but I would certainly makes things clear and on paper first. I do not have an enormous amount of time due to my job (50-55 hours a week) right now, so as little flipping and Reno as possible is my goal- at least at first.
@Marshall Leipprandt I guess my quickly-put strategy would be to put 20% down on property, with as little Reno as possible, maybe 10k max, and rent out for as long as it makes sense. I would be as conservative with my numbers as possible, because I'd want this first property to be a learning experience. On the flip side, it may be problematic if it doesn't cash flow enough, because I want to keep my FIL's interest.

That sounds like a solid strategy. So for a very hypothetical and generic example:

Purchase Price: $100K ($20K Down) / Closing Costs + Misc: $5K / Rehab: $10K = Total Cash of $33K

If the property rents at the 1% rule, or $1,000 month and your able to cash flow $200 month, you'd be splitting profits 60/40 let's say with your FIL. That would be $80 month for him, or $960/year. That's just shy of a 3% annualized return on his $33K in cash. Not great - but if you can find way to make the deal better (lower purchase price, minimize rehab, increase rents, get a duplex/fourplex instead of a SFH, then the numbers start making a little more sense.

@Marshall Leipprandt Thank you very much for taking the time to type out that example. Good point on that it doesn’t have to be 50/50. I would like to try and obtain one property, see how it goes, then try to expand quickly afterwards.

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