Bottom line: I am looking for ways to bring others, who want to invest with me, into single deals. Will likely be different ‘partners’ for each successive deal and/or have multiple deals going at one time.
Background: I've been blessed to have had some decent success recently buying and flipping vacant parcels of land. Through the process of doing seven deals in the last 5 months, a few folks I know have noticed and expressed serious interest getting in on deals; i.e. invest money with me rather than try to figure how to compete in the same space.
Previously I've passed on some attractive larger opportunities as I was not willing to commit the cash to get into the deal. Ideally, I’d be wholesaling and not need to bring much more than earnest money into the deal. But for now. I am finding the deals, getting them under contract, marketing the properties while waiting to close, closing them by funding them with my own cash, and then selling and taking the cash and profits and lather, rinse, repeat.
Thus far the deals I am doing are such that my cash out of pocket from buy close to sell close has been in the $10k to $60k range each deal. I am finding opportunity to do more of the $40k to $80k deals but couldn't concurrently have more than one of those going at a time.
What I would like to do is figure out a way by which I can find and get a deal under contract in my name or the name of a legal entity (i.e. Buyer = Karl James and/or assigns) and then bring in one to three additional participants so they bring cash to the table before the purchase closes and have them take their share of the cash out at sell closing.
Typically, I need to close the purchase-side within two to three weeks of getting it under contract. Then, I have been able to close the subsequent sell side within two to five weeks. My associates who have interest investing have real estate experience and can bring something to the table. One is a realtor, one has typically been a buy and hold (rent) SFR guy, another a SFR buy, fix, flip person. So, they may occasionally be able to bring a target purchase but more often be able to help find buyers – or even take the parcel themselves at at a reasonable discount to FMV and build a house on the land.
It feels a bit like setting up an entity per deal might be the right way to go – albeit might be inefficient; maybe take too much time and has more costs involved. I've thought about constructing one entity and selling ownership in it proportional to the percentage / amount any one or each ‘partner’ desires to participate in the deal. I.e. if for deal #1 I need $80k to close the buy, sell Partner A 25% of the entity for a nominal cost (e.g. $1,000) and partner B 25% and I hold 50%. Assign the contract to the entity. Require partners to infuse the cash required to buy on the same ratio as their ownership. Close the purchase, close the sale, for example for $160k, and distribute cash in the same ratio. Buy back the ownership interest for $10 each. I keep the $990 difference on the sell / buy back of the partnership shares as compensation for finding the deal. I.e. at the time I sell the shares, the partnership has more interest because it has a contract / deal to do. At the time I buy it back, it’s basically worthless because it has no assets and no potential deals in the works.
What I would rather do is figure out how to paper something up on a deal by deal basis that didn’t involve complicated in / out of entities each time if I have different participants at different levels for each deal. I thought about something along the lines of loans. But in the example above, having two different folks loan me $20k and then repay them $40k ($20k principle + $20k ‘interest’) feels a bit like usury at best and pay-day-loan shark at worst. I'd rather stay clear of anything that smells like crowd funding and takes me down a how to deal with the SEC, etc. road.
I recognize this is a long post but I am looking for real ideas or real-life examples of how others have tackled such a situation and want the BP community to have good insight into the need.
@Seth Williams , Jay Hinrichs, Mark Podolsky, Douglas Larson, Michaela G., Steven Butala and other season land investors on BP - any thoughts? Others who may not do land but ran across this doing other types of RE, I'd love your insight.
Thanks
