Should I Takeover A Rental Portfolio?

Question

Hi, this is my first time asking a question on the discussion board. I am trying to figure out the best plan of action for taking over someones real estate portfolio. I have a family friend that owns 20-30 rentals and is ready to retire. He wants to form a llc together and let me manage and perform all the work and repairs to gain equity towards the properties. He wants me to put a proposal together about how I am going to do this. Not really sure how to do it.

So for example, I bring in 5k for skin in the game with an agreement that I will manage all properties for a fee and handle repairs and maintenance for x amount of equity a year toward the properties.

Does that sound like it would work? Is there a better way to set this up?

He owns all the properties out right and really is doing this to help me out. I have managed properties before and have extensive experience in electrical, plumbing, and carpentry work. So the work and maintenance is not a issue. Any suggestions would be great.

Jana Cain · Answer

@Jeremy Patterson Do you know if this family friend has done any estate planning? He will want to make sure that piece is accounted for appropriately on his end before you jump in with a proposal to acquire these properties over time when you're not just buying them traditionally. Heaven forbid something happen to him while you're "gaining equity" and then you're contending with his heirs in the aftermath.

I'm curious to see what you come up with!

Kurt K. · Answer

One approach is take it on as a maintenance / property manager for a month or two for you can get a lay of the land but with no commitments. It will show you what kind of shape the properties are in and also how well you two work together as a team. This might be important to build a relationship first before committing financially or signing your name on anything.

During this time the decisions might make themselves. As @Ralph R. has indicated, it could be a very complicated transaction.

Tami DuBose · Answer

@Jeremy Patterson whatever happened with this? Inquiring minds want to know if you are a full time property manager. How's it looking?

Jeremy Patterson · Answer

@Ralph R. The properties are in decent condition and do not need much maintenance. I understand regular wear and tare. My father has been doing work for this guy for some years and he is a close family friend. He is just trying to get me in the game and help out a young entrepreneur. It is a weird situation and sounds kind of strange, but I am keeping my guard up and plan on taking it one step at a time. Thanks again for the insight.

Jeremy Patterson · Answer

@Ralph R., Very good points on the depreciation outlook. Will be looking into all of this over the next couple of days. This is exactly why I posted this question on the board. I get to put together a question list so when we do sit down I can ask him all of this.

@Kurt K., I think you have a great idea. If I decide to go that route, it will allow me to fully grasp what I have ahead of me. The person who owns all of these properties is a very wise man, but he wants me to do some research and come to him with a proposal and we will go from there. I am sure he has his own idea of how he wants to put this deal together but wants me to learn. I am leaning more toward the couple of months management idea and take it from there. We will see what happens.

Thank you for the great advice and insight.

Ralph R. · Answer

@Kurt K. @Jeremy Patterson amen Kurt. This isn't going to be a simple transaction and managing that many units as well as doing the maintance on them could take a lot of time specially if they aren't in good shape. I wonder how you are going to do that free gratis and still make a living for yourself?How long do you think you gotta do this for free to get the full value of the portfolio?  I have 8 units and they cost 900k. That's a lot of free labor. Unless these are junk you will be working a long long time for nada. If they are junk then you need to run not walk away.  The more I think about it the more I smell a skunk. What makes you so sure this guy isn't just looking for somebody to run his buissness for free?  RR

Jeremy Patterson · Answer

Hi Jana, Did not think about that side of things. He mentioned about putting the properties into a LLC together. That way over time, I gain equity in the LLC and eventually take over full ownership. Not entirely sure how that works, but will be checking into it.

Joshua D. · Answer

As far as taking on the JOB it sounds like you would have no problem doing that.  the question is at what price are you buying these rentals?   willl it be a cut in the monthly cash flow? Is the a buy out amount? I would want it all clear and in writing before you jump in!

Good luck!

Should I Takeover A Rental Portfolio?

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