Fix and flip partnership
Hi everyone,
I've been reading the book "Real Estate Rookie" by Ashley Kehr, this one chapter about Partnerships states that the things you can "bring to the table" are Equity, Sweat Equity, Debt, and Capital.
Equity: your stake or share of ownership in a company
Sweat Equity: performing physical labor in exchange for a share of the company or the property's ownership
Debt: assuming the risk by having the mortgage in your name
Capital: providing cash to start the investment
My question is, for a FIX & FLIP, is it a good strategy to look for a contractor as a partner who will be doing the active work/sweat equity while we use my name to loan from a Hard Money Lender? Given that the contractor will get most of the profit.
The reason I thought of this strategy is that I am on H1B visa, and I am not allowed to do active work besides my current W2 job who sponsored my working visa. I could invest in Rental Properties (which is my ultimate goal) with Property Management for it to be totally passive, but I'm hoping to do a fix & flip to help me raise capital for my first investment & pay some debt that I still have (medical bills).
Your insights will really be appreciated.
Thank you!
It can work. The biggest risk is what if the contractor stinks or they go cold? Then you have to hire a GC and basically do the whole project yourself. On your first one I would recommend doing yourself unless you partner with an investor who is experienced. Down the road if you connect with a solid GC then you can think about partnering
Quote from @Caleb Brown:
It can work. The biggest risk is what if the contractor stinks or they go cold? Then you have to hire a GC and basically do the whole project yourself. On your first one I would recommend doing yourself unless you partner with an investor who is experienced. Down the road if you connect with a solid GC then you can think about partnering
Hi, that would probably be the risk so finding a really good partner is necessary. What do you mean by hiring a general contractor but doing the whole project by myself? Can you enlighten me please, thank you. I'm not really knowledgeable about most part of RE yet.
So, in your situation, who would be footing the bill on the transaction? Let's say you are buying a house for 125k, putting 75k into it and it will be worth 275k when done.
To pick up that house someone will need to sink 30k+ into the deal. In your scenario, who will be the one to do that?
These books mean well, I'm sure they do, but do they talk about how when you first start you really need money and good credit.
I have people contact me all the time asking me if they can get a HML for like 80% of a purchase and then get a gap lender to fund that other 20% so they are in for zilch. Uhm, no. Not unless the gap funder will deposit money into your account and you will season the money but they do not do that, they want to be second position on the mortgage even if you find one and no HML will do a deal like that. The second they feel you do not have money, they drop you.
Don't believe these books and podcasts that say you can do real estate with no money of your own. Not true. Unless you have a rich friend or family member backing you then yes you can.
Most people who read those books, are often very surprised to find out what the real deal structures look like once they contact lenders.
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@Mike Klarman in that case I will be the one putting money into the deal. Thank you for this info regarding HML. That is why I want to build up a solid emergency fund/cash reserves before I really jump in.
A helpful document to think through who is doing what. I do joint ventures all the time. https://docs.google.com/docume...