Investing with a partner and making a business out of it

[Thomas Bullock]

My friend and I purchased a 3 family home about 2 years ago. We started out by watching bigger pockets youtube videos and dove right in. I see tons of success stories and I’m trying to get myself in that position as well one day.

I can't seem to wrap my head around how to make a "business" out of the real estate avenue I've chosen. I want to buy multi family properties with 30 year fixed rate loans. The issue I'm noticing is that doing this strategy with a partner who isn't a spouse is foreign to most people. Every time i mention my investment strategy to other investors, they don't understand why I'm working with a partner. In addition, loans have been difficult to process while working with a partner. We're both veterans and we're trying to start out by using VA loans and FHA loans to avoid the massive down payments, but there are restrictions with those loans. So now my partner and i are both on the loan but only collecting 50 percent of the income. So now our debt to income is negative which makes purchasing the next property difficult.

So here’s my dilemma… I can’t afford 20 percent down to go conventional and avoid all the owner occupancy restrictions and what not. So the alternative is working with a partner to be able to increase my loan approval, split the risk, and obviously help with management. Seems like a great deal. So how do I make working with a partner a business and become one unit instead of 2 individuals.

This is long winded and I guess I don’t have a clear question. Im looking for any insight or any mentorship in how I can organize this strategy because as it stands, I can’t process how this actually works in terms of scaling.

[Zack Karp]

@Thomas Bullock it's unfortunate that you didn't have someone guiding you with a better strategy from the start. You should not have both gone on that first property together. You should have taken a divide and conquer approach. Even if you want to "partner" together, buying and financing these homes separately is the better play. That way, you can each utilize both your VA and FHA eligibilities and maximize the amount of homes you can buy with low down payments. You can figure out all the partnership logistics separately with the amount of funds contributed, rental income, etc.

It might not be too late to refinance the first property into only one of your names and remove the other one off the loan and title. It depends on whether you used VA or FHA. And obviously the interest rate will be a lot higher now, so you would have to stomach that. But you would need to determine if that higher monthly payment is worth freeing up the ability to buy another property.

If you need help mapping out a better strategy to get you to properties 2,3,4,5, etc, feel free to reach out.

TYFYS and best of luck!