BRRR Strategy with Partners

[Martinis Jackson]

Greetings BP Family

My wife and I are investors in the Maryland area and our overall strategy is buy-and-hold while using the BRR strategy. We know that we will find better deals if we have cash, and although we are continuing to build our coffers, we know at least 3 private investors (friends) who would be willing to invest. However, I have a few questions for others who are already implementing this strategy successfully about the following:

1) Does it make sense to have each person commit to a certain amount of Capital? e.g. 20k a piece totaling 80k. From there, should we search for distressed properties where we are all in at 80k and the AVR is much higher, then BRRR to put the money bank while splitting the cash-flow 4 ways. Then repeat? Example: 80k property all in; AVR = 130; Refinance at 90k (And split profits); cash flow on the rents 4 ways

2) How do you structure these partnerships? As equity partners or as lenders loaning you money at a certain rate? Should you inform them that they will receive a certain % on their money as opposed to splitting cash-flow and then give them a term on their loan?

3) What are the biggest hurdles we may encounter during the refinance aspect? I've heard stories where banks appraise the property at the purchase price despite all the work you've put into it. How do we make sure we are able to refinance at least for what we put into it? Are banks more likely to refinance you if there are more guarantors on the hook?  

4) Is the better strategy to have all four investors apply and be guarantors for a line of credit? Do banks care if there are more people on the hook or will that not matter?

Any ideas are welcome.

Best regards,

MJ

[Austin Fruechting]

I assume your friends don't have the experience and it's all about your expertise and knowledge... that you'll be finding the deal, running the deal, and also managing the asset after and they'll just be putting in cash? If so....

Option 1) they put up the money, you put in the time.  50/50 split between you and the investors.  Cash flow 50/50 and anytime you refinance or sell they get money back and any additional is 50/50 too.  (If you have 4 cash people: 50% to you, 12.5% to each cash partner.  If you are one of the cash you get 62.5%)

Option 2) Structure it as private lending.  Give them maybe 10-15% on their money while you're using it, then after you refinance and pay them investment plus interest you have the property fully on your own after the refinance and get all the cash flow.