All Forum Posts by: Jacob Pereira

Hi BP,

I've always been a buy-and-hold investor and have never had partnerships before, but recently a colleague of mine presented me with a partnership offer on a flip he's considering that seems worth going for. I'd like to get some advice from here on how to structure our partnership to be legal and as tax-advantaged as possible. Some details:

All costs and labor will be split 50-50

He will take out the loan, then he will quitclaim it into an LLC which we will both own evenly

Upon sale of the property we will liquidate the LLC and split all profits evenly

Is it that simple? What are some things I'm missing? Any additional advice before I go on this endeavour? 

Thanks for your help.

Hi BP,

Just like most people who post on here, I think I'm always right. Recently, I've been thinking about it and I've decided I'd like to benchmark my investments against the thoughts of others and see how I fare. I'm going to try to minimize assumptions to make sure that I don't skew opinions, but I'll try to give as many factual detail as I can. I will of course give my arguments for the deal, when they're not necessarily factual yet. Tell me; am I an idiot, or is this deal doable.

Market: Austin, TX

Property: 4-plex in 78724 zipcode, built in 1983, some deferred maintenance, but nothing major

My offer price: $256,500

Total rent roll: $3,050 a month

Financing: 25% down, 3.85%

My thinking is that I can do a few basic repairs and raise the rents by about 10% in the next year, and then raise at market rates after that. No plans to do serious rehab beyond paint and replacing carpet with engineered wood anywhere in the near future.

Keep in mind the local market; I'm not in San Jose, where this would be a screaming deal, and I'm not in Lansing, where this would be the worst deal in the world. I'd equate my market as similar to Denver or Charlotte, although I'll let you guys give your own opinions on that as well.

Any advice, analysis, critique, hatred, or attaboys are welcome.

Everything in life is a negotiation. Keep in mind that you're posting on a forum where most of us are landlords, so we're more sympathetic to their view than people would be on a consumer protection site. Here's how I see the situation:

Landlord's leverage - market rents are significantly higher than what he/she is charging you currently, you don't want to move

Your leverage -  vacancy, make-readies, marketing all cost the landlord money, you're known to be good tenants, tenant-friendly laws (many of these are local and I'm not an expert in your market, but Google is your friend)

What I would do in your situation is talk to the landlord and see if you can get some of the updates now, especially the ones that will save you money. Point out that you are a known entity, and that the Also start searching around and see what else is available. And hey, what about buying? You are on an RE investment site after all.

@Trevon Peracca, Semper Fi! That's even better. I actually got started when I used my VA loan with zero down when I got out of the Corps. If it's less than 5 units you could use it here, otherwise it'll be tougher.

Interesting study. It als breaks down the markets generationally. The National Association of Realtors just came out with their own study on millennial homebuyers and a lot of the same cities correspond. 

@Saar Kagan, I'm a little confused by this question; why not just wholesale it? You're taking on a lot of additional time and transactional costs by buying it outright and then selling it again. Or is it simply that you think your profits would be higher if you take possession and list it on the MLS as compared to selling directly to an investor?

It seems to me like it's a lot of additional steps for minimal additional gain, unless I misunderstand something.

What about borrowing against your own 401k account for the downpayment? I'm not an expert in this, but I believe you can borrow 50% of the value, up to $50k, which wouldn't cover the full 25% you need but would go a long way towards it.

Hello BP,

I started investing during this latest market boom, so I have no experience with landlording during a recession, and I would like to hear opinions about an idea I had. How do people here feel about using section 8 as a hedge against market downturns? I figure 1-2 section 8 tenants per building could provide enough guaranteed income that I should be able to weather most storms. The government pays the majority of the rent, so job loss is less of an issue, and rental rates won't go down as quickly. Thoughts?

@Aaron Fox, good catch. I meant to say that an investor could easily put in 100k of their own money, and an agent only puts in time and smaller expenses.

@Joe Villeneuve, good point, although that assumption does require that the REI is already financially established.

Congratulations! You have either avoided messy evictions proceedings and will get your tenant out much sooner than you would have otherwise been able to, or you can apply for an involuntary allotment for his debt, although to do that you will need to get a judgement against him. I'm not sure exactly what the process is there, but I remember my bunkmate having to pay an involuntary allotment due to a debt he owed back when I was in the service.