Investing as a couple with a partner

[Jen Senecal]

I am new to real estate investing and looking to invest in south San Antonio area. My boyfriend and I will be partnering up with our good friend who is also a newbie. I was wondering if anyone has any advice for how to navigate this type of relationship. We are still debating doing one LLC or if my boyfriend and I should create an LLC and our friend creates his own. We plan to meet with professionals to discuss the best option for us but I would like to hear some personal stories from the BP family as well. Thank you!

[Joseph Cacciapaglia]

I think the structure you choose will have a lot to do with how you decide to separate your roles. Are you all going to be active participants in the business, or will there be a passive "money" partner? How are decisions going to be made? Is it a pure vote, or does one of you have final say? Will you be doing multiple deals together, or is this a one off transaction? I like to work out all these issues, before sitting down with an attorney to decide on a structure. They'll want to know these things, and you don't want to be on the clock while you're figuring them out.

I'm also curious, what attracted you to the south side of town? Not many of my investor clients active there.

[Jen Senecal]

Thank you that is very helpful information, we will have to figure out all of the details. Right now my boyfriend will be putting in most of the capital using a HELOC and we will have to figure out how to come up with the remainder of the money. I think once we figure out the finances we will be able to figure out profit and equity based on our roles and capital investment. We want to at least work together on the first two or three properties to gain experience before possibly splitting and my boyfriend and I would continue to work together.

We are interested in south Austin based on what we can afford and after speaking to a local real estate agent. Also SA seems to be growing and the south is currently under developed compared to the rest of city. Locals believe the south will begin to grow and become somewhat hip. 

[Daniel Hyman]

Lots of variables here. Best to consult with an attorney who can help you draft an operating agreement that lists the details of the equity structure, partner responsibility, liabilities, management, books and records, etc.

[Steve S.]

Single purpose LLCs are easy to do and should be done in Wyoming. No state taxes and you have complete anonymity. Incredible. 

[Grace P.]

My husband and I partnered twice with two different couples to do flips.  I would say make sure you communicate and structure your plan in advance.  I'd say we didn't have any bad experiences with our partnerships but in the end we spit because it's easier and less stressful to be on our own. And we were financially able to do so.  You need to consider many aspects of the partnership.  Who will do the work? How will you all make decisions? Who will do the bookkeeping? How will the expenses and profits be split.  What is your exit strategy if it doesn't work out?  If you have a falling out will it ruin your friendship?  It is difficult to go into business with friends and if you can afford to do it on your own you should. 

[Daniel Schiller]

@Jen Senecal like everything from SA to San Marcus. Your org structure and business entities need to be fleshed out with with a solid lawyer and CPA specifically focused on real estate. Don’t use your partner’s cousin, “friend”, etc.

But first and foremost, as newbies, you need to find a solid banker to help you vet deals. Most of the Texas regional banks essentially provide free back office support for deal valuations.

Good luck!!!

[Jen Senecal]

Thank you @Daniel Schiller. I am not really sure what you mean by valuation. Are you pertaining to the deal? or the house value? 

[Doug Smith]

Entering into a new partnership is exciting. Your head is dancing with the possibilities that the new venture could bring. You must, however, protect yourself. There are so many sayings that fit so well in this particular situation. I’m reminded of two saying that I use a great deal.

Good Fences Build Good Neighbors is a saying that my grandfather used to say. He was a farmer and a darn good one at that. He was full of wisdom that I always will value. Your neighbors seem to be nice people. If you want to keep that relationship friendly, you need to have clearly defined boundaries. I made my biggest business mistake when I was much younger when I entered into a business with acquaintances that I trusted. About ninety days into the venture, when all of my money was into the deal, they changed. They quickly took advantage of my and I lost a ton…including my marriage. Be sure to let your attorney handle any negotiations with you and make sure they are drawing up your agreements for you. Never ever ever ever write your agreements on your own. That goes doubly if you are an attorney. You are too close to the situation. You need to have an impartial, competent attorney “build your fences” by writing documents that protect you if and when things go back. Speaking of that…

The second saying that has a lot to teach us came from one of my friends that happens to be a divorce attorney. “Everything ends badly. Otherwise it wouldn’t end.” When two people get married, very few enter into the union thinking that they will ever get divorced from their partner, yet half of the marriages in America end in just that way. When you are entering into a new venture with someone, you really need to plan as if things will go awry. Are you protecting yourself and your interests? The time to prepare for things going bad is before you enter into the arrangement. Have your attorney protect your interests by having them draft good documents.

Entering into a new venture with others can be very exciting, but it can also leave you in the poor house. I made the mistake of not preparing from the outset for the separation. I’ve never made that mistake again. Take if from a guy that’s made that mistake before. Don’t let your rose-colored glasses cloud your judgement. Rely heavily on your attorney, accountant, and other impartial trusted advisors and protect yourself.

[Anthony Wick]

Everything Daniel said about an LLC, plus; make sure you have a solidly written buy/sell agreement, in case things change and one of the partners wants out. Do nothing without everything in writing by an attorney, and filed with the state.

[Marlen Weber]

Excellent advice on this thread. Thank you all for expanding on this topic. 

[Ronald Rohde]

Plenty of good advice. I'd recommend LLCs for each entity and consider that you and your boyfriend are two separate households until you're actually married. 

[Jen Senecal]

Thank you all for your input and advice ! I really appreciate it    ! 

[Basit Siddiqi]

@Jen Senecal

I am sorry - but creating a partnership among 3 people who are all new doesn't make sense to me.
If you are all new - you won't know the steps that should be taken to invest in real estate and who/when the decisions will be made.
Who will pick the real estate agent, who will pick the contractor, who will pick the exit opportunity, who will pick the type of mortgage to get, etc.

I would want to create a partnership with people who have a skillset that you don't have.
If you don't have experience in real estate - I would want to partner with someone who does have experience.

Good luck to you and your investing career.

[Jen Senecal]

@Basit Siddiqi I see your point. Thanks for the advice and we’ll sure look out for the points that you raised.

[Ronald Rohde]

Originally posted by @Basit Siddiqi:

@Jen Senecal

I am sorry - but creating a partnership among 3 people who are all new doesn't make sense to me.
If you are all new - you won't know the steps that should be taken to invest in real estate and who/when the decisions will be made.
Who will pick the real estate agent, who will pick the contractor, who will pick the exit opportunity, who will pick the type of mortgage to get, etc.

I would want to create a partnership with people who have a skillset that you don't have.
If you don't have experience in real estate - I would want to partner with someone who does have experience.

Good luck to you and your investing career.

 Thats a fair point, and I think it can be mitigate by spending more time up front on the agreement. Laying out exactly the decision making process, voting, notice, monetary thresholds, etc. 

A partnership is good for new investors to mitigate their own lack of experience, what are they to do if they don't know anyone willing to partner on the first deal? Its a catch-22