Form an investment partnership with my GC? Pros & Cons wanted

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Form an investment partnership with my GC? Pros & Cons wanted

Leanne Pressly
Member since 2018 · 13 posts · 7 votes

I've invested in real estate for 20 years in Colorado. I have several successful rentals. I'm the CEO of a marketing agency I started 10 years ago and that's my main gig. 

Right now I'm building a new rental and hired a GC. Lately, he's been saying he wants to make more money and get into the investment game but he has limited capital (he has access to a HELOC for $60K at 6%). I have capital. Right now about $100K to spend.

 
What are the pros/ cons of partnering with him in a business venture vs. just doing my own thing and paying him as my contractor?

I might add I have another girlfriend who suggested we partner as well. She's a savvy realtor, owns rentals and she also has capital. Maybe I form a syndicate? Not sure if we'd buy and hold or buy and flip. I love making money but of course, I hate paying cap gains. 

So far, the pros/ cons I have are:

PROS:
Dedicated GC/ Subs to turn projects faster
Bigger pool of money to work with

CONS:
Less of control in decision-making
Going into biz with girlfriend (of 20 years) could be bad idea

Thanks in advance for any thoughts on how to structure things as well? If GC does most of the labor, would it be fair for him to put in $60K, I put in $100K but then we split profits since he's doing about $40K worth of work? How do most syndicates/ partnerships set up the structure?

Leanne

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  • Dennis Maynard
    Real Estate Broker · Los Angeles, CA · Member since 2018 · 307 posts · 146 votes
    7y

    On the surface, it can be a win for both.  Get everything in writing.  Make the equity values commiserate with what is being contributed in both 1st money, next time.  Sweat equity has value, but not as much as capital.  Start small, go project by project to try it out so you are not locked in.  If it works, form a Partnership or corp and go ham.

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  • Leanne Pressly
    OP
    Member since 2018 · 13 posts · 7 votes
    7y

    @Dennis Maynard thanks for your quick reply. Would you include the realtor friend or just do first deal with GC alone? Can you give me math example with your capital/ sweat equity priorities? Ie, if I put in $100K and he does $60K, what does the equity split look like?
    Do you think I'd make more money partnering with him vs. paying him outright for services? 

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  • Dennis Maynard
    Real Estate Broker · Los Angeles, CA · Member since 2018 · 307 posts · 146 votes
    7y

    The math is exactly that: 100/160 = 62.5% ownership to you the remainder to the GC.  You are controlling interest and make all the decisions.  They become a partner.  who is signing on the loan, you?  Then you are the general partner in the partnership cause its your butt on the line.  It's best to envolve an attorney to draft these agreements.  It's worth the money, and they will think of details that you won't.  You can use a letter of intent to lay down the initial structure to hand to an attorney, but if you don't know, then just go straight to the attorney.  There may also be a profit sharing structure as well.  Again, keep it simple, get good advice from an attorney.  The $1,000 is well spent and they have to pay their share of that costs.  Up to you on the others.  You will have to do an LP unless they qualify under the securities laws.

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  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    7y

    Personally, I wouldn't do it unless you know this person really well. 

    From a compensation standpoint, this isn't quite the same as a syndicate, when you have a pool of passive investors who do not have a controlling interest in the company. As long as you both think you're getting a good deal, then go with that. 

    Having a lawyer draw up your agreement, as @Dennis Maynard said, will be well worth the money.

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  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    7y

    SFH people are living paycheck to paycheck and I don't really want to do business with these types of people.

    I would rather go into larger deals as a LP.

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