How Many Partners is Too Many

Question

I'm preparing for my first flip in Q1 next year. I work in new home sales so I have a finger on the pulse of the market here in Houston. I'll be using agents that I trust to help pick the right property. I'm weighing whether to have multiple colleagues invest with me, or just go right to a HML, purchase price in the $100k area. This being my first flip, I value the experience as well as the financial gain.

I'm comfortable investing up to $50k of my own money and I'm considering up to 3 additional partners to finance everything, if I can't get 1 sole investor (unlikely). I have a carpenter friend who will provide some labor and oversee all of the construction, for a percentage of the net profits. My question for the vets is, do you think it's likely to create problems with too many cooks in the kitchen, i.e. more partners, more potential opinions on the desired outcome? I think I'd have to define up front that project decisions are solely mine and my investors are just that, investors, not partners on the job. The negative of the HML is obviously they're taking more of my profit, but if executed as perfectly as possible, I'm not splitting the pie 3/4 ways. Thoughts?

Michael S. · Answer

I have had one business partner for the majority of my REI;  however, for a few properties, I had two partners, and that worked fine as well.  The most important thing is I fully trust them, and am not looking over my shoulder.  We also have clear articles to the LLC generated by lawyers to keep absolutely everything transparent.

Marty Hyland · Answer

Thanks Pat, that's great feedback. If you don't mind me asking, do you pre-arrange what their cut is? I'm trying to determine if we should agree, up front, on a percentage of gross/net profit, at the moment that makes the most sense to me, but what do i know! Other people's money is the best kind of money, but I'm more comfortable having some skin in the game also.

Pat L. · Answer

We've had a few over the years & my wife has 'discouraged' me from ever entertaining one again, including family.

But we do have a couple who we have partnered with for >7 years now & they have become amazing friends. They often stay weekends at our Lakehouse as we plan more projects & our business dinners during the year are a blast. They are hands off, cash in, few questions asked, just send us our %. Met them by luck just after both were laid off from the same company & they wanted to get into REI & it has worked well.

Last weekend, while at the Lakehouse, we actually drove by several projects they had invested in but had not yet seen. TRUST is essential !!!