Newbie Investor Seeking Advice on How to Structure Partnerships

[Shawn S.]

Hello fellow BP members!

The inventory of the market I am looking to invest in is pretty low. As a result, there is a great deal of cash buyers which makes it difficult for me to be competitive. This is one of the reasons why I am considering partnering with someone that has enough capital to buy properties with cash.

What are the different ways to pursue deals with a partner that has capital? For example, if I am looking to purchase buy and hold SFRs and/or MFRs, how could my potential partner and I structure the acquisition of the deals? Two potential ways I imagine are setting them up as a private money loans or doing owner financing.

Any ideas? Looking forward to hear from any BP members that have worked with partners.

Thanks in advance!

- Shawn

[Matthew Irish-Jones]

@Shawn S. First you need to decide if you are partnering or borrowing money.

If you are partnering you either both need to sign the contract for a residential loan or you can set up an Limited Liability Company. You will most likely need to take a commercial loan if you attempt to buy through an LLC.

Then you need to decide on equity and operations. If your partner puts up all the money will you do all the work for free? Or will you structure your entity so that the equity reflects the Capital contribution?

There are still a lot of properties being sold that are using traditional financing. I would not give up just yet. I would ask your agent what you need to do in order to be competitive on the next one.

Partnering can be very tough in RE. Most people own rentals for 20+ years. That’s a long time to be in a partnership, chose carefully.