All Forum Posts by: Tim Porsche

@Dan Bunch - Yes I was thinking about having something drafted up by an attorney. Are these types of equity sharing agreements fairly common, and something most attorneys would do? Also, rough ballpark figure, what is it going to cost to get an agreement like that drawn up? Is it something where I could go off of a free template online and customize it for my specific situation, or is it better just to get a lawyer to do it?

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@J Scott - Thanks for the reply! I just finished reading your book on house flipping (loved it) and am going to recommend it to my realtor to read as well before we start.

So just to make sure I understand correctly, you are saying that if we purchase a house for $50,000, put $20,000 into it (including loan points, holding costs, etc...all in), then sell for $100,000, the numbers would break down like below?

Selling Price = $100,000
House cost + Rehab costs + Loan points + Holding Costs = $70,000
Total Profit = $30,000
Partner's Profit = $15,000 + $3,000 for sale commission = $18,000
My Profit = $15,000 - $3,000 sales commission = $12,000

Do I have that right?
Also, I don't pay him any commission on the purchase of the property right? That is paid by the seller?

Originally posted by @J Scott:

Basically, it sounds like his responsibilities include:

1. Being a Realtor

2. Providing half the invested capital, and half of the rehab work

For #1, above, I would pay him his typical commission on the purchase and his typical commission on the sale.

For #2 above, I typically assume that the money guy gets 50% and the guy doing the work gets 50%. If he's providing half the money, he gets half of the first 50%, and then if he's doing 50% of the work, he gets half of the second 50%, for a total of 50% of the profit (after the realtor commissions are paid).

You are providing 50% of the money and 50% of the work, so you would get 50% of the profit as well (after the realtor commissions are paid).

Now, if he's not actually providing 50% of the money or 50% of the work, then you can adjust the values based on what he (and you) will be providing.

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Hi All,

I was recently approached by my realtor who helped me purchase two rental properties over the past year, when he found out I was looking to start flipping houses come early 2016. He is interested in partnering with me, but we haven't worked out most of the specific details yet. I'm excited and think it would be a great partnership because...

1. I'm not a realtor, and do not have access to the latest listings on the MLS. This would solve that problem.

2. He knows the area very well and has been working in it for years. He seems to sell a good amount of houses every year, so he is good at that.

3. Since he is a realtor and could handle the selling part, that would save us 3% on selling costs.

My first question is, how should we go about structuring the partnership so that it is fair to both of us, and legally protects both of our interests? We were talking about going in together 50-50, we would finance with either hard money or private money, and each of us would put down 15% for the downpayment on the loan (to include purchase price + rehab costs), for 30% down total.

My second question is, for those of you who have done partnerships like this, what do the roles and responsibilities of each party look like? For instance I am thinking...

My Responsibilities

1. Provide 15% downpayment on loan

His Responsibilities

1. Do showings, get house sold, and handle the back end of the sale

2. Provide 15% downpayment on loan

3. Submit offers on houses we are interested in purchasing

Shared Responsibilities

1. Actively look for good deals to put offers on, through Craigslist, auctions, etc

2. Each provide 15% downpayment on loan

3. Analyze the numbers on each deal in depth to determine if they work or not

4. View houses we are interested in together and estimate what would need to be done and what the rehab costs would roughly be

5. Analyze comps to come up with a good, solid ARV

6. Work with the GC on determining the scope of the renovation, setting a timeline, setting cost expectations, keeping everything on track, etc.

Since he would be doing a little more than I would and bringing more to the table, would something like a 45-55 split of the total profits make sense? Any advice would be greatly appreciated. Thanks!

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Originally posted by @James Ihssen:

The key I have found to a successful BRRRR strategy is getting the deal at the right price. If you cannot get the property for under 70% ARV all in (purchase price plus rehab plus holding costs) then you will need money to put into the cash out refi. The goal is to recycle your money and keep using the same money to build your portfolio, which will not be possible if your numbers are not right.

The local banks do not always have seasoning requirements so that you can begin the process of a cash out refi as soon as you have a tenant in place. This is nice because you can ramp up your holdings quicker and build your portfolio faster. @Jamal Pitts is exactly correct, the local banks will often keep the loan in their portfolio which is more favorable for you.

A lot of the banks require a seasoning period and that keeps your cash trapped for a longer period of time, which can be especially costly if you are using hard money to finance your buy and hold properties.

BRRRR is a great strategy that allows you to take chunk of cash and use it to buy many houses over time. Just keep your numbers straight and you will do well. I am a broker so I have access to the mls to run my own CMAs, which is a huge help when determining ARV. I ALWAYS go conservative with my numbers and that keeps things safer for me. Worst case the appraisal comes in a little low and I have to keep a couple grand in the deal on the cash out refi side, but even still my cash on cash return is Phenomenal! That never happens to me though! Just know your numbers in advance and you will be successful!!!

Best of luck!!

Thanks James! That is some great information. I will talk to my current mortgage broker and see if they would require a seasoning period on something like this or not. I have two mortgages with them already and like dealing with them, so I hope not.

So if I'm hearing you correctly about the 70% rule in this circumstance, if I bought a property with an ARV of $200,000, then ideally I wouldn't want to pay more than $140,000, less whatever rehab costs, closing costs, and holding costs there are correct?

One last question, what is the best way to find good comps in your opinion, for someone without a real estate license and access to the MLS? Do I just rely on my realtor for that information? What if there is a time sensitive deal and they don't get me good comps quick enough to make a decision, what do you do in that case?

Thanks again for your advise, really appreciate it.

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Originally posted by @Dave Toelkes:

@Tim Porsche,

I think you are misinterpreting how the flat tax would be applied. All the rental property "deductions" you mentioned are not deductions, but rather business expenses. Deductions are those things you claim on Schedule A.

If a 15% flat tax plan plan were enacted, then one of the loopholes that might be closed is the net passive loss allowance. Your rental income property might still generate a tax loss on paper, but you would probably lose the ability to offset that tax loss against your other ordinary income.

Losing most of the personal deductions allowed on Schedule A will only affect those who itemize deductions. Whatever amount of itemized deductions that is no longer deductible increases taxable income. Those taxpayers with taxable incomes less than $42060 will see their tax bills go up on the 15% flat rate plan. Those taxpayers with taxable incomes greater than $42060 will see their tax liability go down on the 15% flat rate plan.

If my assumptions are correct, then the poor will get poorer after taxes and the rich will get richer after taxes.

@Dave Toelkes - So would depreciation be considered a business expense then or is that something a flat tax would eliminate as a deduction in your opinion?

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Originally posted by @John Warren:

@Tim Porsche I have a good investor friendly mortgage guy if you need one for this strategy. In fact i was just discussing this strategy with him last week over breakfast. Let me know if you need his info.

John

Thanks John I will definitely keep that in mind. Does he work with out of state investors? I am from Pennsylvania. I haven't talked to the place I got my current two mortgages from yet on my duplex and single family home (Mortgage America), so I'll probably talk to them first but it would be great to have someone else to talk to as well.

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Thanks for the breakdown of the numbers everyone. That helps a lot, I feel like I have a better understanding of what the numbers look like now. So basically I need to assume that if I refinance with a traditional 30 year mortgage, they are going to only loan up to 70% of the ARV. Did not realize that before. Thanks again

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Originally posted by @Jerry Dengmanivanh:

It's 3:24am here in Central Illinois and I have to agree.. My math shows 70% of $190,000 is $133,000 as well.

Best of luck to you on your BRRRR investing venture!

Thanks Jerry! I can't wait to get started. I should have the funds I need to start making deals by Spring 2016 if all goes well. I'll be posting my deals for analysis when I start to come upon them at that time.

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Originally posted by @Donald M.:

Would be nice to see this question asked at a debate and see how all the candidates respond.

I agree that would be interesting to see.

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@Logan Allec - Okay thanks for the info, I didn't realize they were only talking about personal deductions and not things that would affect you in real estate investing. This is good to know, now I can stop worrying haha.

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All Forum Posts by: Tim Porsche

Tim Porsche has started 58 posts and replied 187 times.

Post: Partnering with Realtor - How to Structure Partnership

Post: Partnering with Realtor - How to Structure Partnership

Post: Partnering with Realtor - How to Structure Partnership

Post: BRRRR Strategy - Refinancing Question

Post: What Would Ben Carson's 15% Flat Tax Mean for Landlords?

Post: BRRRR Strategy - Refinancing Question

Post: BRRRR Strategy - Refinancing Question

Post: BRRRR Strategy - Refinancing Question

Post: What Would Ben Carson's 15% Flat Tax Mean for Landlords?

Post: What Would Ben Carson's 15% Flat Tax Mean for Landlords?