Is partner shady or really unorganized?

Question

My husband and I are in an LLC as members and our partner is manager of the LLC. We have 2 SFH properties we seller financed together and everything  went smoothly. We are newbies and our partner is very experienced in real estate and has everything from rentals to seller financed and wholesale deals. We’ve also known our partner for many years. We partnered together so they could teach/mentor me as this person has so much experience and we had a private money lender to finance all the deals but no experience. We bought a 3rd property and decided to sell the SFH retail and build a duplex in an existing structure that was also on the property. Things started getting harder and more complicated the more I asked to be included in the decision making process/day to day operations of the duplex project. We had major differences in opinion on how much to freshen up the existing SFH so we sought advise from 2 separate realtors. To which both advised spending a little more but the return would be doubled. Partner refuses to do anything to SFH, we are at an impasse. At the same time we purchase a fix and flip which is now our 5th property. Our partner has gone through the entire duplex budget and all we have is the foundation, roof, and inside framed. All work has stopped we’ve had 2 meetings. One prior to money running out telling partner we need more information and updates on projects and want to be more involved. Communication breakdowns have been rampant in the last 6 weeks since the first meeting  so once more we force a meeting with partner at which time we learn all duplex money is gone. We still have the money for the fix and flip but my husband and myself don’t feel confident with partner managing that and so our partner decided reluctantly to let me lead the fix and flip project. The very next day I have a meeting with our contractor and am enlightened on a few things such as he was instructed to never listen to me and we were bad people the partner wishes they didn’t have to deal with. The partner proceeded to not pay the contractor for a job he did on one of their houses and he is filing a lien. I have an appt with an attorney in the morning. Is it possible that my partner really has to much going on and just can’t handle their properties and our partner properties and didn’t mean to run us over budget and won’t admit that. Is the contractor is lying to me about the things they told me for no reason? Our partner denies everything I’ve been told by contractor and that she wasn’t really trying to keep me in the dark but she wasn’t being paid to teach me. I don’t want to believe what is now happening but she wants a meeting and I don’t feel comfortable having one before meeting with attorney. Can we divide properties while they are in the middle of rehabbing? Any advice is appreciated.

Jay Hinrichs · Answer

Run those notes through the PV  present value function on your real estate calculator. you will find out that the cash value today is a fraction of the face value..  take the sure money if you believe its sure money on the flips and then do your own thing. those are subprime loans in MS.. not the most marketable of paper.

Caleb Heimsoth · Answer

@Angel Malone you’re either being screwed in a fraudulent way or this person is extremely incompetent at what they’re trying to do.  Neither sounds very good to me.

I’d talk to an attorney.  Be very leery of working with partners in the future. It often doesn’t end how you expect it to..

Nik Moushon · Answer

I would have at least a phone conversation with your lawyer first if not a meeting but what ever you DO NOT tell your partner that you are going to one or are/have talked to one. They will let you what kind of questions to ask but not give away that you are considering filing anything against them. You don't want your partner to clam up on you just yet. You need to get more information. Not just on your partner but on EVERYTHING. Start taking notes and record EVERYTHING. Who said what and when and to whom. Who you talked to about what. Start putting together a time line of events. This will be good to take to your lawyer and eventually the courts. The more information you have the better off you are going to be in the end.

It sounds like your partner might be in some hot water on another project and is trying to take money from one job to pay another....if they are not straight up stealing but that doesnt sound like it. Unless they are just really bad at covering their tracks. Or it could be a number of things. Who knows. Sorry you have to go through this but you need to start taking steps to insure your future well being and investments. Your friendship and relationship with this person is done with for good. You will (should) never trust them to work with again. Don't try to play nice...you dont need to get nasty and mean but you have no obligation to be nice to them about this. If the situation was reverse would they? Doubtful.

Bill F. · Answer

@Angel Malone I'd follow your attorney's advice and keep the process simple, dissolve the LLCs and start over with cash in hand.

No matter what way you slice this situation you are at an informational disadvantage to your partner from an overall experience point of view and with regards to insider knowledge of these specific deals. They simply know more than you on both fronts so getting into another "deal" with someone you don't trust seems unwise to me.

Like @Jay Hinrichs alluded to, your notes seem like more trouble than they are worth since 1. the spread isn't that much in absolute dollar amounts and 2. they aren't worth a ton today.

I know next to nothing about the market for notes, but at a 15% discount rate (which I have a feeling is very generous), your $42k note has a present value of around $17k, taking into account that for the first five years you'll have to pay the hard money off.

If I were in your shoes, I'd sell everything on the open market and move on. If you lose money, that's tuition.

Good Luck.

Jay M. · Answer

Get out!!!!  (said in a loud Amityville Horror voice)....  He/she is a crook, grifter, thief whatever you want to call it.  Consider it tuition to the school of hard knocks.  Oh, she/he won't let you go quietly either.  You are nothing more than a blank checkbook as verified by your contractor that spilled the beans...I've seen a dozen of these grifters in construction...

Angelica M Garzon · Answer

Hey Angel ,

I definitely think getting a lawyer involved at this point is the best thing to do.

I always believe communication is key in any type of relationship, in this case have a sit down with your mentor and go over initial expectations when you guys first agreed to do a partnership deal and each person's responsibilities and contributions. Once, that's on the table shift to what has really transpired and the events (facts) that have lead to your frustration.  At the end of the day (legally) what matters is what was said, promised and expected (hopefully you guys signed some time of agreement) to what actually happened or the lack of.

Good Luck!

Wayne Brooks · Answer

Time to cut and run....the only question is How.  I’d happily have the meeting before meeting with your attorney, you want see what their “angle” is before they know you’ve lawyered up.  I wouldn’t mention the attorney, or show your intentions at this meeting....just learn everything you can.

Best of luck, this not likely to be fun...but will be educational.

Pat L. · Answer

Got talked into a partnership last year on a flip, his idea. NEVER partnered before & NEVER again.

BUT we do have a 4 member corp that finances a LOT of investor property the corp owns/flips/holds. The TRUST is there so we rarely meet, but communicate on the fly via text & email. My wife is the CFO & she is tough when it comes to expenses & analyzing/financing deals & filing tax returns. It's been a very profitable relationship for quite a number of years, yet it was a chance meeting years ago & we all clicked over breakfast.

Its all chemistry & yours is like the proverbial oil/water scenario with some toxicity thrown in. Cut & run.

Angel Malone · Answer

Yes I have finally gotten beyond the okay nice stage. I know I’ve done nothing but tried to make this work out. I do not wish partner any ill will, but I do not want to continue this partnership. I have an appt with a lawyer tomorrow that I will not reveal to partner. I’m hoping for the best but trying to get prepared for the worst.

Joe P. · Answer

With a few deals under your belt, even if there is an amicable split (or otherwise) you should have good funds available to continue this journey, and hopefully some contacts that might need relationship building, but good contacts none-the-less.

I'm also going to assume that there is information within your agreement that will outline what happens in this situation? E.g., should there be a dissolve of the partnership, you would agree to sell all properties and split proceeds 50/50? At least I hope this has been answered in your agreement.

I also agree with discussing with a lawyer, privately, (sounds like this was already planned for this morning) as this seems to be headed down quickly. This person is shutting down and your attempts to speak with them are only making it worse. How could you, as a partner, trust this person again? I don't think I could.

I'm also posting here as I am interested how this unfolds. Please keep us posted, hopefully we can provide you some value as you go through this unfortunate process, and the process itself serves as lessons learned for other investors looking to get involved in partnerships.

Is partner shady or really unorganized?

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