Is not wanting a partner to split profits with a bad mindset?

9 Replies

My father and I are thinking about getting a partner to help with the down payment on a fourplex but are hesitant because of the need to split the profits. I think it is a bit greedy, but this is our first with potential for great returns

How are you financing the deal? What's your down payment as a percentage? You can also go to hard-money lenders. FHA would be your best bet though with as little as 3.75% down for up to a four-plex acqusition.

@David Cruice The fourplex is 100% occupied and my family couldn’t live in one of the units, so I believe that disqualifies me for an FHA loan. I was thinking of using a partner to help finance the 20% down, but that cuts into profit, rIght? Not sure If that Is the rIght mIndset If I need help fInacIng the deal, or I just need to be more creatIve

@Nick Cockrell this is your first deal.  50% of something is better than 0% of nothing.  Find yourself a partner to help with the financing of this deal.  If you can, offer him terms, e.g. 8% interest, with the option to buy him out after a specified period.  You might also want to throw in a sweetener based on a percentage of the equity in the property if it has appreciated in value.  A bird in the hand is worth two in the bush.  

@Nick Cockrell If you have a good relationship with this potential partner and your goals are aligned I would go ahead and partner. This partner relationship and experience will be far more valuable going forward when you go to acquire larger properties than the value of the “lost“ profits on this first deal.

@Nick Cockrell You are borrowing 80%  from the bank right.  Why is it OK to split profits with the bank but not split profits with a partner? 

There are many ways to structure this. You may have a partner buyout agreement. The split doesn't have to be exactly as the amount of money put in. If you found the deal and you will manage the deal and the only thing the partner provides is money then it doesn't have to be an even split.

I think you'd be blessed to find a partner. If this is your first deal you're bringing neither the experience nor the funding. Someone will be betting a lot more on you than you even have to bet on yourself.