Is partnering to cash buy, flip and sell, repeat a good strategy?

Question

New to real estate investing and trying to avoid using leverage/loans involving interest due to religious reasons. My wife and I have another married couple friends in the same boat and we thought let's partner and pool money to cash buy and then flip a house, start off cheap like a $100,000 house, flip and sell and use profits to buy a $200,000 house, repeat and rinse until we can afford a 4 unit multifamily to rent out. Ultimately goal is to generate passive income through cash flowing properties without using interest loans. Does this seem reasonable or is there a better strategy with creative financing that does not depend on loans? Thanks!

Travis Timmons · Answer

It's great if it works. If neither of you have any experience, it's going to be tough. There are a thousand little decisions and sources of conflict in a renovation or flip. You have 4 chefs in that kitchen; you better have all ground rules and responsibilities lined up and in great detail. If the best case scenario is that you make $20K-$30K and the worst case scenario is that you lose a friend and some money, I would pass, be patient, and go at it alone.

I'm just a stranger on the internet. My opinion is worth what you paid for it. Partnerships are much, much easier said than done. If you do follow through and do it, figure out how you get divorced BEFORE you get married. All partnerships end...figure out that ending on the front end.

David Constant · Answer

Welcome to the BP community :)

My 2 cents on this: it seems like partnering up with your friends will allow you to invest more quickly than if you wait and save the money yourself. If this is true, I would definitely encourage you to do so. Any time you go into a financial endeavor with friends (or anyone else for that matter), you want to keep a few things in mind:

-I'd recommend connecting with a lawyer and forming an LLC. When you introduce money to the equation, it's important to protect everyone's interest (financial and otherwise). By forming an LLC with a lawyer - and by getting clear on roles, responsibilities, voting, etc. - everyone will be on the same page when it comes to decision-making. You want to guard against a scenario where you find a deal but your friends say no because they're in charge of the money.

-outline the process beforehand, to the greatest extent possible. While you may have to consider changing course midstream, have a plan of attack before you launch into this partnership. For example, are you searching for SFHs, multi-families, short-term rentals, etc.? Do you have a contractor connection? Who is your attorney? Lender? Real estate agent? Building the team in advance and having a clear goal and making sure all partners are in support is crucial.

Just a couple of initial thoughts - DM me if you want to talk more!

Bob Stevens · Answer

Not sure what else to say but YES, However you are not ready, You need to connect with someone doing deals. Find them deals, earn , save then go on your own,

Jacob LeBar · Answer

Hello Huzaifa, and welcome to bigger pockets. Pooling resources with another couple to buy properties in cash and flipping them can be a reasonable approach to real estate investing without using interest loans. However, ensure that all partners have sufficient capital for upfront costs, conduct thorough market research, and have expertise or hire professionals for the flipping process. Alternatively, consider alternative strategies like wholesaling or rent-to-own arrangements. It's important to consult a real estate professional or someone with experience who can provide guidance tailored to your religious restrictions and help explore creative financing options that align with your goals.

Samuel Eddinger · Answer

In creative financing, generally you are going to be taking a loan from the seller or take over the loan from the seller (Subject to).  You could try to maybe do a master lease where you are renting the entire property and then are subletting the property to other people.  You could also draft a contract for some period in the future so that you can pool enough people together to buy the property in cash.

In that way you could do everything but own the property until you get all the finances in order.  Besides that, I'm not sure of any creative financing that does not involve loans of some kind.

Is partnering to cash buy, flip and sell, repeat a good strategy?

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