advice on investing with a partner

[Carla Sutherland]

Hi - I'm looking for advice - and shared experiences (good and bad) - on how to set up a partnership with one other person to pursue purchasing and managing properties - SFH and Duplex - in a small town aimed at student rentals.

I'm new to real estate investing, and interested this specific market which is out of state (I'm based in Brooklyn).   I've met an experienced investor who knows the market incredibly well and has a very successful team to support her - financing, buying (she's a registered agent), rehabbing, connections for student renting, and property management.  

She's been helping me look at potential properties and I like them very much.  She's suggested that we think about working together in a partnership - I have capital, she has knowledge, experience, and is on the ground.  I like and trust her - I think we could work well together.  

I wanted to get people's advice about how to structure such a partnership? What are fair terms for both of us?  What questions should I be asking?  What terms would be bad for me to say yes to?  

I'd love to hear any stories about successful partnerships (and why they worked) and am very keen to find out about partnerships that went wrong (and why).  

Any advice would be much appreciated!

[Scott Mac]

Hi Carla,

If it were me, I'd sit down with the potential partner (over a business meal to make it a little more relaxed) and discuss upfront the things that the two of you think might cause the partnership to go wrong. Get those questions out in the open and try to solve them ahead of time.

You can discuss:

• Profit splits.
• Depreciation splits.
• Who is going to pay for what percent of the startup costs.
• Who is going to do what.
• What happens if someone cannot do their part.
• What happens if someone does not do their part.
• Who will cover any losses.
• What if one person cannot cover a loss.
• How will you handle any added money that is needed in the future.
• etc...

Then when you have some of that hashed out, both sit down with an Real Estate Attorney who form LLC's and talk to him about it.

Good partnerships are about good communication.

As far as splits, rather than think what is good for you, maybe think what is (fair) for her, and go from there. That might give you some additional thoughts in this very important subject.

I like Olive Garden after the lunch rush.

Good Luck!