is partnering up on your first real estate venture a bad idea?

Question

Little background about me; i am 27 live in NY. Owned my first pet store business at 19 with my older brother. Sold it 3 years later and been just going in and out of jobs. Didnt graduate college, was going to be a police officer but realized it wasnt for me. Recently came across RE and sparked an interest. So i been studying REI its something that excites me and gets me up in the morning. I have a wonderful brother in law who would partner up with me, just want to hear some background information or experiences with people that had partners. we will both be going 50/50 on the capital and whatever expense we endure. Any feedback will be great help, thanks!

Nathan Roberts · Answer

In this particular situation if I had cash that was not in a bank, I would partner with someone. The reason being that banks are required to have a paper trail of the money used for down payment or closing cost to make sure the money is legal. There is a standard practice that will be nearly impossible to get around. The best thing to do would be to talk with a local bank/lender. They may be able to work something out to where you just need to keep the money in an account for x number of days.

In my opinion, the BRRRR strategy is the best way to build your wealth. This method allows you to build wealth at an exponentially faster rate than other investing strategies. By forcing appreciation through a rehab, investors can leverage repairs to increase the rental value. On top of this, they are increasing the value of the property as well ie; rehabbing the kitchen, bathroom, adding walls to create a room, etc. After a minimum of 6 months, you can typically do a cash-out refinance where you can pull most if not all of you money out to repeat the process. I don't know how you can get a better deal than waiting a year to pull your money out to repeat the process (you essentially paid nothing for the property).

Nathan Roberts · Answer

Hi @Danny Lee,

There are many ways to set up a partnership in real estate investing (REI). Before going into a partnership with someone, you must understand why you would do that in the first place. Is it for a lack of capital or are you fearful of risks? You must also understand that you don't know what you don't know (or supposed to know). Obviously this is the case with anything you get started doing so don't let this hold you back if you've been studying REI. What is your partner bringing to the table? Do they have experience investing or will they just provide capital? These are questions I would ask yourself before partnering on a deal. All partnerships (no exception) should have a legally binding partnership agreement so neither partner can interpret anything out of context. A good partnership agreement should outline all three of the following; who will do what and how, who will contribute capital and how will it be used, and how does everyone get paid and/or equity in property.  This can help alleviate some potential risks with investing. Let me know if you have any questions; I would love to follow-up with you on your future successes.

Best Regards,

Nathan Roberts

Nathan Roberts · Answer

This is what the BiggerPockets community is here for. Don't hesitate to reach out if you have any additional questions. Pleasure speaking with you!

Danny Lee · Answer

Thanks @Nathan Roberts ! Much appreciated of your time and effort to answer my questions. Wish you the very best for the holidays =]

Danny Lee · Answer

Hi, @Nathan Roberts

Thanks for responding, so i guess my biggest issue is fearful of risks. two heads are better than one, also he has better credit and income history than me which will play a big factor in the loan. We will both be equally splitting the equity and the capital or maybe ill be providing more capital, than that will lower his equity. And thanks for the input on the legally binding partnership. We will definitely be getting some kind of agreement in legal writing. So my issue is that I do not know if i would be getting approved on loans on my own. My funds are in hard cash not in my bank accounts which is why I think he will benefit me in that way.(i been slowly putting money in my bank accounts) Also i would only partner up on my first property and go from there. Not trying to have him as my partner through out my career. What would you do if you were me? Not having your money in the banks and trying to get approved for a loan. I also live in NY so the property here is so expensive, so i figured i would need to find property away from NY, like Florida for example. I like the strategy of BRRRR and it takes a team to start this, i just figured with a partner from the start would be beneficial since we can split the work. They say your first property is the most important start to your career so i just really want to get it right.

is partnering up on your first real estate venture a bad idea?

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