Partnering for BRRRR

[Michael Coco]

Hi, I'm currently trying to start my real estate journey. I have a loan pre-approval and "some" money for a down payment (though my loan costs would be lower if I had more). I know having a mentor is good (accepting applications!). However, I do want to "go in" with at least one other person (maybe two). Ideally, the person would be handy, local, help contribute financially, and have the same basic investing goals. I would form an LLC for this, and I'm pretty good with corporate law so I would address common problems up front (what happens if one person quits, wants to retire, we disagree on something, etc.). I went to a few meet-ups pre-covid and found lots of people offering services, but not so many looking to start investing. So, two questions for the board: 1) what problems are there when you're working with a partner or partners that I might not have thought about specific to real estate; and 2) any recommendations on places to find other interested people? Thanks!

[Randall Alan]

Quote from @Michael Coco:

Hi, I'm currently trying to start my real estate journey. I have a loan pre-approval and "some" money for a down payment (though my loan costs would be lower if I had more). I know having a mentor is good (accepting applications!). However, I do want to "go in" with at least one other person (maybe two). Ideally, the person would be handy, local, help contribute financially, and have the same basic investing goals. I would form an LLC for this, and I'm pretty good with corporate law so I would address common problems up front (what happens if one person quits, wants to retire, we disagree on something, etc.). I went to a few meet-ups pre-covid and found lots of people offering services, but not so many looking to start investing. So, two questions for the board: 1) what problems are there when you're working with a partner or partners that I might not have thought about specific to real estate; and 2) any recommendations on places to find other interested people? Thanks!

@Michael Coco

 Points of contention would probably be around each individual’s contribution.  What happens when you (say the motivated one) does 80% of the work - (even if it is just leg work) and the others do little to none?  

What happens when more money is needed and not everyone wants to continue to throw money at the problem?

What happens when there is a disagreement as to renovation level… one person wants higher end, the others don’t? 

How do you determine value mid-stream if someone is exiting early? 

Don’t forget about carrying costs… property taxes, insurance, utilities, etc as ongoing expenses. 

A partner that is not a spouse can definitely be more of a challenge.  Disagreements about almost anything are possible… like “who chose the crappy contractor?” After you figure out he is crappy, walks off the job, etc?  

My personal suggestion: figure out how to go it alone.  No one will care more than you, and you will seldom run into disagreements (with yourself😜) when it is just you making the decisions.

Otherwise, you might look for investors that are just in it for the return on investment (silent partner) where you get to control the direction entirely… it would simplify a lot of those potential challenges.  

But overall, an operational partner where both are active in the decision making can be a rough go if either are strongly opinionated.

All the best!

Randy