Advice on using an investor/partner to BRRR
I have a friend/investor to whom I have explained the BRRR method and he has voiced his desire to invest. He said he is willing to put in a certain amount of capital and not expect ANY financial return for years to come. His part will end at investing (minus consulting with him if needed). I told him, based on his investment toward each home (hopefully we can pull close to our entire investment at refinance and use the same money again), he could own a percentage of the homes purchased in return. Both of us are new to investing.
This is a friend and not a family member. Eventually he will want the returns on his investment. A few questions:
What percentage of a home do I offer? The same percentage of the overall capital to purchase, hold, and renovate the home minus my management/time? Surely me doing all the work to find the properties, manage rehab, in other words run the business is equity/time. How much is that generally? 20%? 30%? Do I do a contract with each home? I may put up more capital on a home down the road etc. Eventually I may want to do some on my own.
Is there a better way to do this? I want to be fair to him, but also make money myself.
Some day down the road he will want his money/percentages of homes. Do we sell a few houses to pay him his share? Like buy him out? How have you handled it with your partners while using this method?
What about cash flow from rentals? We both agreed to make sure there is a savings for repairs, vacancies, etc. for each home and that we would use all money for the first few years solely to reinvest, but what if one of us wants to use a small amount for personal reasons? How do you configure that?
I appreciate any insights given.
I have 2 partners I work with. I didn't bring any money, just knowledge and legwork. I am an equal partner (33.3%) and thats what I own of the LLCs assets. We have provisions that if someone wants out, we value the company and the other 2 pay him 1/3 of its value. If we have to sell a property to come up with it, so be it.
The answer is that you can really do whatever you want. I think giving him a 20-30% stake is fine. You probably want to create some sort of legal partnership or LLC for the buying and selling. That will make things cleaner all the way around and prevent you from starting from scratch at each new transaction.