Structuring a Partnership

[John Leake]

I currently have a friend who is trying to help me get started in real-estate-investing he currently owns two duplexes he lives in half of one and rents the other one out. He is ready for another deal and wants me to manage the property for him my first concern is the lack of experience I have with real estate in general and the second Is how to structure the deal to provide both of us protection he has money to front. So what would the bigger pockets community recommend for us as far as structure and for me specifically to do to make sure we are successful. We are looking for multifamily buildings and I have a couple I think have potential I'm also trying to determine the easiest way to pick between buildings I have not looked at either property yet but one is 174,900 list on the mls with 6 units I have not been inside of the building but I believe the rent in the area is around 700 per door. The other is 119900 with 5 units in a bit rougher area I don't know that I'm comfortable with this one but it may have better income if the area isn't as bad as I think. I was really planning on waiting another 8-12 months before getting into real estate this was because that was going to give me time to build a bit more of a nest egg to invest out of. Thoughts anyone?

[Chris Jackson]

@John Leake  I think its great that you have a friend that trusts you, believes in you and is willing to front some money for you to get you involved.  I would caution getting into a partnership without any experience at all, especially with the arrangement you described with you managing the property.

The property manager is basically the key to the success of the property and you just described that the PM on this deal had no experience, you.  Why not search out deals where the income makes sense with a professional PM?

Is your goal to become a PM?  If so why not just have your friend hire you for a similar fee that he would pay a professional PM? This way you could get experience as a PM and he can fire you if you are terrible ;). Also, PS many times to be a true PM you do need a license to negotiate leases etc. You need to look into your local and state laws. Double check that.

Are you handy ?A good plumber?  A good electrician?  A jack-of-all-trades? Your partner is not?  Do you have connections to tradesman that can get things done and know how to manage them vs your partner who does not?

Partnerships are about 1 + 1 = 3. Always.  If you are not filling the void of each other's weaknesses and enhancing each other strengths the partnership will be stressed over time.

Is your partner just the money guy and does not want to do any work and is very interested in getting involved with real estate but is really just wanting passive income from the benefits of REI, thats fine too but know that he is really a money partner, which is also important but that would mean a different type of partnership and different expectation of you.

Sit together and really discuss what you want from each other.  Ask the really hard questions.  

Sorry I don't have a crystal clear answer but I would view your relationship with your friend as a real positive.  You have someone that believes in you and is willing to work with you. That's a really great first step.