Working With Partners

[Dave R Ludolph]

Hey BiggerPockets fam! I plan on buying my first property by January 1 at the very latest. I just kind of wanted to tell everyone my plan with my partner and see what you all think. Constructive criticism welcome! I plan on investing locally here in Cape Girardeau, MO to start out and then eventually branch out. I have lived here my whole life and have been studying the market long before I even thought about investing in real estate. I plan on using a partner for this for as many deals as possible. This partner is like a brother to me. I have known this person basically my entire life. We are very honest with each other and have always respected each other even with our differences. We are looking at this at the aspect that the more we can work together the faster we can scale. Twice the income, half the risk, half the monthly cashflow. We plan on reinvesting all the cashflow into more properties until we make enough for both of us to retire from our jobs. As of right now we decided to get an LLC right off the bat. This wouldn't have been as important to me if i was going into business by myself but my partner and I both value the benefits of having one. We figured we might as well get it out of the way if we are going to scale the way we plan to. We have an operating agreement that basically states we own 50/50. Trying to find a good accountant at the moment. I've talked to two so far and only one does the tax side of accounting. I may use that one but I'm going to continue looking for one. My real estate agent is actually a broker. I went to high school with him and played some sports with him. He is probably the highest selling realtor in town. He also invests in apartments AND owns a property management company. He has offered his services as a advisor, real estate agent, and property manager. I can't be thankful enough for that. This week i plan on getting a final answer on getting a HELOC for my current residence. I'm hoping to get access to about $15,000 from that. My partner and I both plan on using money from our HELOC on our personal residence as down payments toward properties for short term financing. We both want to BRRRR. From my understanding we can then get commercial loans on the property and a commercial loan to rehab the property. We want to repeat the process trying to double the doors acquired from each previous deal.

[Joe Villeneuve]

Originally posted by @Dave R Ludolph:

1. I made January 1st my deadline because i don't want to get stuck in analysis paralysis. I should specify that I want to close on a house by then. I will be actively looking for properties here in the near future. 

2. I am investing locally because i live in the midwest where prices are low and it is a very renter friendly state. We have a university here that brings in thousands of potential clients. We are also the largest city between st louis and memphis and from what ive seen there has been a ton of development in this town. My only concern is how rents do not raise rapidly here so it could potentially become difficult to find something that cashflows. If i run into that problem i plan on looking in the stl area. 

3. We are forming a partnership because we know if we use our resources together we can scale much more quickly as long as we can work together. We are both financially responsible and looking to exit our jobs. He and i both grew up fairly poor and we both want to give our children the lives that they deserve. We have common goals as to where we want this company to go and how much risk we want to be involved. We also are going into this knowing that the other can obviously pursue deals on their own if they so prefer. 

 OK.  Here are my comments on my questions...and why I asked them:

1 - Setting a calendar goal, instead of a financial goal (profit and/or CF on the property you buy) will cause you to rationalize a bad deal into a good one.  You said this was a concern of yours, which is good, but the priority should not be a date first.

2 - I live and invest in the MW also. I invest here because the area has many, MANY, micro-markets where the deal profiles align with the criteria needed from my REI Plan. Having all of those things you mentioned as reasons doesn't make it a good (or bad) area to invest. The choice of area/market is solely based on numbers with dollars signs in front...and the numbers to look at are the spreads between the cost to get in, and the cost to get out...your money that is. Not the value of the property unless you can cash flow and/or profit because your cost to get into that market is low enough for a profit.

3 - There are ONLY three reasons to form a partnership.  Every successful partnership was formed when at every partner fell into one of more of these reasons.  Friendship, common goals, relatives, etc...are not reasons to form them.  Those "supposed reasons" bring nothing to the partnership.  The following three reasons do:

     1 - All partners must do something the other partners can't do.

     2 - All partners must do something the other partners don't want to do.

     3 - All partners must do something that the rest of the partners shouldn't do.  Just because you can do something, doesn't mean you should.

Now this partnership you want to form could very well fall into one or more of these reasons, but if it doesn't, it won't last long.