I Have Cash But No REI Experience. Recommend a Partner at 1st?

Question

What's up everyone,

I've been running my own online businesses for quite a few years now, and I'm looking to branch out into the real estate game. I have built up a good amount of cash, and I'm about to sell one of my businesses for somewhere in the mid 6 figures within the next few months, which I want to use to invest in property.

I would like to start out with fix and flips as they suit my personality the best, and they parallel some of what I've done in the online world (I've bought many existing websites/online businesses, "fixed them up" aka increased revenue and valuation, and held them for a bit before selling them for a profit).

The cash out to me is always the most exciting part, and it's what keeps me motivated for the next deal. I'll eventually get into rent and hold as well, but I know I want to start with flipping.

I'm almost done with the Bigger Pockets book on flipping by J Scott, I bought a few other books that I'm gonna read next, and I've been reading some of the blog posts here to learn what I can on my own.

I like the idea of partnering up with someone for my first few deals though to cut the learning curve down and learn from someone experienced. I'd be able to bring money to the table in exchange for the knowledge I gain from working with this person.

My questions are:

1. Is this what you guys would recommend for someone in my position with capital and business experience already? I'm okay with walking away with less profit in the beginning if it means a solid education before I branch out on my own.

2. What does a typical deal structure of this caliber look like? For example, is there a percentage of the purchase price that the inexperienced person brings to the table usually? How are profits normally split? I'm sure every deal may look slightly different, so I'm just looking for a general idea here.

Any other tips or resources you have for me would be appreciated.

Thanks!

Jaron Walling · Answer

@Jay D. With relatively no real estate experience you could be the money man. You could learn important skills by working with a professional, take a smaller slice of profit, and take less risk. I would not make any moves until you start networking in your market (REI meetings, Bigger Pockets, business events).

Nick Rutkowski · Answer

@Jay D. What kind of partner do you want to be and how actively involved are you looking to be?

From my understanding, the more involved in the deal you are the bigger slice you take from the deal. So if you wanted to be a lender who lent the capital, you take a smaller % than if you wanted to be the investor who runs the show.  The amount you would need to come up with depends on your deal, you could bring 20% or 100%. Depending how much you put up will determine how much profit you'll get back.

Troy Sheets · Answer

Abraham Lincoln: Give me six hours to chop down a tree and I will spend the first four sharpening the axe.

I'd spend a lot of time learning on here first, sharpening your axe. If you've already done that, I'd recommending doing a few cheaper flips yourself so you can learn the whole process front to back. Sourcing deals, learning your market, financing (even if you have cash you may still need financing for larger deals in the future so learn it now), appraisals, design, permitting, rehab process, selling, renting, etc.

Think of this as the time to ride with training wheels, learn the biz, find out what parts you like and what parts you loathe. Worst case you lose a couple grand or even $10k on a flip, still a cheap education. If you land a bad partner or loan money to a scammer you could lose a lot more. If you understand how all of this works after a few deals on your own, you'll be in a much better position to protect yourself going forward and figure out what direction you want to move towards.

Protect yourself with the right insurance and the right legal entities. You have a lot to lose, get a top notch professional team behind you before you dive into anything. Ask for recommendations on here for a lawyer, accountant, realtor, etc. As you get more sophisticated you'll need a bigger, better team but start there. Protect yo neck :)

Teri Feeney Styers · Answer

@Jay D. it really depends on the team you build - a good REI broker for both the acquisition and sale, a good general contractor, etc. I would start there - look at potential properties - pick one - and then decide where you are "lacking". You may not need a partner at all - just a good team.

Nick Rutkowski · Answer

@Jay D.  You might want to be active and find an investor you connect with, try a meet up in your area. Someone mentioned forming a team, that seems to be a good place to start too. Broker, Lawyer/title company, inspector, contractor, accountant are a few people you can find to help you.

Teri Feeney Styers · Answer

@Jay D. a good broker and a good GC are an excellent start. And they are "partners" - just in a different sense than you initially inquired about.

Jay D. · Answer

@Nick Rutkowski: I don't want to be just a lender who isn't involved. I'd like to be involved with every step of the way so I can learn the process before venturing out on my own. What I'm thinking is I bring money to the table to reduce the risk of another experienced investor, and in exchange I get to learn from him/her and we split the profits however we agree.

@Jaron Walling: That's what I had in mind, but I wasn't sure if there was a standard practice when it comes to these types of arrangements. For example, the inexperienced investor with the cash (me in this case) brings X amount to the table and gets Y% of the profit.

Would it be pretty easy to find an investor open to this through a local meetup or through Bigger Pockets, or are most of them good on their own and don't really need me involved?

@Teri S.: I guess that's what I'm worried about is I feel like I'm lacking in every area right now except for the financial part. Do you think finding a good REI broker and GC would be enough to get me started and be able to guide me through the process while I'm learning?

Thanks everyone.

I Have Cash But No REI Experience. Recommend a Partner at 1st?

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