Go it alone or join a team?

Question

Hey everyone! Thanks so much for all of the contributions to the forum and thanks in advance for taking the time to help me out! I'm a new investor, ready to go, but have a situation I would like some thoughts on.

I'm an agent, as well as having spent the better part of the past six months obsessed with REI. I'm interested in buying and holding, with some flips thrown in there, centered in the Houston area, at least for the time being. I've learned so much and I made that clear to a hand full of people. Some of those people are investors who have told me that they are willing to fund deals as I come across them. One of them is someone who is a homebuilder who has similar goals. The homebuilder recently came to me and proposed that I join forces with him and his investor who has funded his home building projects. We would start an LLC and would split ownership as follows:

Me (acquisitions & property management): 15%

Him (acquisitions & rehab): 42.5%

Investor (big bag of money): 42.5%

Are goal is to make 15 deals in the next 12 months. If I were to be doing this on my own (with investors), I would be much more careful and conservative, likely doing 1-2 deals in the next 12 months.

The pros of the deal are that I get an education and to build wealth with no capital invested.

The cons are that these are not properties that will put money in my pocket now (cash flow will be re-invested), and that I agree to not do any other residential investments on my own. Though I think it is fair to ask for a "no-compete" from me, I want to be building my own portfolio.

Really my question here is, is a smaller piece of a pie at no capital investment to me more valuable than a much larger piece of a significantly smaller pie?

It should also be said that I have great relationships with both the homebuilder and the investor. I have known them for a very long time and have been mentors to me in my personal life and people I have always looked up to.

Additionally, although I can't invest in the single family class of asset, I will still be an agent and can pursue other projects/investments as long as they are not in direct conflict with what we will be doing together.

Lastly, I will be fighting for more equity if I decide to go with them.

Thanks!

Ted Sornson · Answer

@Matthew Rolf

Great insights. We covered some of this, for example, the non compete lasts as long as we are working together and it goes for all three partners. Additionally, the goal is for us to be equal partners down the line with ways to earn equity by bringing value to the table.

I'm certain that I can market the leases and that I would be the listing agent, however, it is smart to get this covered. If I were to be the selling agent, would it be fair for me to expect to receive a commission? I would think yes, even if it is reduced, however, I'm open to being wrong on that one, opinions appreciated.

Right now, I'm thinking that I will go to them in negotiations and fight for my ability to do one deal/year on my own, but only after we have accomplished 50% of our annual goals as a company. The argument I'm making is that I want to build my own portfolio but am putting the interests of the company before mine.

Matthew Rolf · Answer

@Ted Sornson I'm sure some will disagree, but my first thought is that's a good deal for you especially if you are a brand new agent and also haven't invested on your own yet.

Some things to make sure you clarify...Is there a period of time the non compete lasts after you end actively working within the partnership?  Are you able to market the homes to get more lease leads and / or would you be the listing agent if they decided to sell some homes?  Would you be able to build your own portfolio if you stayed in certain zip codes they didn't work within?  Would they be willing to change the agreement % if you were performing for the team at a high level (with certain objective targets in place)?

Ted Sornson · Answer

The thought is that it would be a conflict of interest. In other words, if I'm in charge of acquisitions and finding the deals, the fear is that I would cherry pick the best ones to keep for myself and turn the others over to them. I think it is fair for them to hold this view.

Drew Sygit · Answer

Why can't you do this with their money and still do a deal or two of your own on the side? Just don't hide it from your partners.