Investing Solo vs. Partnering with Friend

[Melanie Pray]

Hello! My husband and I are looking to buy our first rental property this year in Baltimore, MD. We have an out-of-state friend with a lot of cash who wants to invest with us, but we wanted to get some fellow real estate investors' opinions on a couple partnership-related questions first.

1. Any thoughts on the pros/cons of investing on on our own more slowly but getting all the profits versus partnering with a trusted friend and buying more properties quicker but splitting the profits?

2. If we go with the partner, we will be doing all of the initial legwork and number crunching, and most likely managing the properties ourselves. Are there any recommendations on how to structure the partnership and investments? Example: (A) Split everything 50/50, or (B) partner pays 60% of cash needed and we pay 40% since we did all the initial work, pay ourselves the property management fee until we decide to outsource, and split the monthly cash flow 50/50.

Looking forward to hearing all your thoughts!

[Seth Ferguson]

Hi @Melanie Pray,

In terms of question #1, I think it all depends on the end result you want. Some people want to be in full control. Others don't. If the money partner has a decent chunk of change available, that could help you scale a lot faster. I'd lean more towards scaling faster, but that's just my preference. The only person who can truly answer that is you.

#2) if you're doing all the work and the money partner is bringing the capital, a 50/50 split is reasonable. If you also bring some money into the equation, that split should move more in your favor. 

Far too often, people don't give themselves enough credit or value for the time, skill, and effort needed to successfully source, acquire, and manage a property.

Whenever you start a jv relationship you need to make sure you have a clear contract that explicitly states what happens for cash calls, selling the property etc. What if the money partner needs the money out quickly two years from now? Is this a 7 year hold then sell, or will you go for a refinance? The contract should have everything laid out.