What are different ways to partner with somebody?

Question

Thanks for reading!  First time poster but long time reader of the forums. I have a couple single family houses but I want to buy small multifamily properties.

What are some different ways to partner with somebody? I don’t have the 20% down to keep doing deals and buy these small multifamily properties by myself or the cash reserves in my bank to get approved from banks. I don’t want to keep waiting 3 or 4 years for me to save up for a downpayment.

How did people like Rod Khleif buy 800 single family homes? Or Sterling White with over 150 single family homes? I really don’t understand how they are doing that.

If I have little to know money to put into these deals, but If I specialize in finding and analyzing deals, which I do, how can I partner with other people? Family members are not an option. Could I raise a small amount of money for the down payment and rehabs? Like a small syndication?  Thank you!

Michael Ealy · Answer

Actually I did. Your question is how do you find partners...and you wonder how some investors were able to buy hundreds of houses.

Well, in my answer, I said the key is getting a good deal, and then successfully making money with it. Because when you do, the profit from a good deal will enable you to do 2 things:

1. reinvest that profit to buy another deal - you can research BRRRR for example. With BRRRR done right, in the right markets, you can in theory have 100 houses with a $20,000 investment. I actually did better than that because I went from $0 to 1,000 apartment units with essentially BRRRR with apartment buildings (I started with a 2-unit building)

2. success attracts investors - or more specifically having a track record of success will attract people who want to partner with you. When you're successful, you don't even need to ask how to partner with people with money. People with money seek you out. That's how I got my Chinese investors. They actually approached me through a contact of mine who knows of the successful projects I've done.

Paul Moore · Answer

@Jon Guy. Hats off to you for moving up to multifamily. If you want to raise capital for a deal, you will need to be a legit partner in the deal. Or get a license through a FINRA-regulated broker-dealer.

I am writing a BP book on self-storage, and many of the paths to success for storage are the same as you could travel down to work your way up in MF. We have identified 7 of them.

1. Deal finder

2. Capital raiser (as a partner)

3. Jump in at a high level and build a team

4. Get a job (and work up from there)

5. Hire a mentor/coach

6. Stacking (start small and work your way up)

7. Invest passively or semi-passively

#5 and #7 are my favorite paths. Good luck!

Michael Ealy · Answer

I have over 1,000 apartment units and I started with $0. How did I do it?

I didn't aim for small cashflow or passive income. I focused on buying properties low enough or that I can enough value so much so I can sell them at a good gain (and use the money to buy a bigger deal or more deals), or I can refi my and my investors' money out so I can buy another deal.

When investors saw the returns I was generating for myself, they wanted "IN" so I let them ;)

So start small but find a great deal. It snowballs from there.

Joseph Firmin · Answer

@Jon Guy Lots of ways to partner... in @Brandon Turner ‘s book No or Low Money down, he goes into a lot of this, including, Lease option, split duties (what @Paul Moore was getting at) - essentially you bring the deal and knowledge and someone else brings the money. You then set up an LLC or entity together with the partner and in that operating agreement spell out who is responsible for what (duties), who has what capital contributions, who has what entity shares/units/equity in the LLC, etc... Your structure is limited by your creativity and questions you ask. Hopefully that helps.

Dave DeMarinis · Answer

First, @Paul Moore and @Michael Ealy are both legitimately trying to help you. I don't think you will get much by criticizing them. Your OP was easy to interpret that you need investors. In your follow up, i think you are saying you have plenty of people who are interested. Your two questions are as follows.

1. How do get the money to go 50/50 with your partner? In short, don't. Think of the deal as components.

A. Finding deal and convincing seller on priceB. Providing EquityC. Securing Debt (and "guaranteeing it)D. Adding Value (renovation, repositioning, stabilization, etc.)E. Asset management (operating the stabilized asset/property management)F. Selling the asset

You allocate a % of the deal to each component and the provider of each element gets that portion of the deal. You are saying you can't do (B) cash down and (D) secure loan. However, the other 4 parts are still worthwhile, probably not worth 50% but 25% is reasonable. As an exercise, assign a percentage to each component and I think it will get easier.

2. How to structure it? If the above was useful, I'll take a shot at this one. If I missed the mark above, the structure doesn't matter.

Hopefully that helps.Hopefully that helps.

Jon Guy · Answer

@Tj Hines thank you. But HOW do I partner with somebody? Lol I have networked. I have went to meetups. I have people, other than family that are interested.

But HOW WILL I PARTNER with somebody if if I don’t have the capital requirements to go in 50/50. And I don’t have cash reverses or the downpayment in my bank, that the bank will require. What is the structure like for the partnership? When I go to a bank to get pre approved and I say oh ya this guy I know is covering all of my downpayment and expenses. I know that won’t work lol.

Can anyone answer this?? 🥴🥴🥴

Dave Peirce · Answer

<<But HOW do I partner with somebody? Lol I have networked. I have went
 to meetups. I have people, other than family that are interested.

But
 HOW WILL I PARTNER with somebody if if I don’t have the capital 
requirements to go in 50/50. And I don’t have cash reverses or the 
downpayment in my bank, that the bank will require. What is the 
structure like for the partnership? When I go to a bank to get pre 
approved and I say oh ya this guy I know is covering all of my 
downpayment and expenses. I know that won’t work lol.

Can anyone answer this??>

There are as many ways to structure a specific deal as there are sands on the beach.  Though, in general terms, they will most likely take one of two forms, either debt or equity.  So, say you find a deal, but don't have the cash.  If it is a flip, maybe you find a hard money lender or private money, have them lend it to you, and you do the rehab and then flip it, and if you do well, you profit.  Or maybe it is a value add property that will take a few years to get turned around, find someone with the money, form an equity partnership, you bring the deal and manage it and split the income and sales proceeds a certain way (though you have to be careful with security laws).  As for exact terms (such as interest rate, points on debt, or equity spliting) there is no one size fits all, and mostly comes down to what your potential partner/investors will be happy with, as there are a number of items you can give or take.

Now, that is it in very general terms, as the devil is in the details and there can be a lot of complexity as well, such as entity formation, debt terms (especially if using bank financing), personal guarantees, JV vs syndication, etc.  In turn, specifics may limit who you can market towards and how you do it.  But in general, like @Michael Ealy said, start small, detail a reputation and track record and then scale up (and at that point, you will have your own money to put into things).  As it is pretty tough to do much, if you are new, don't have any money to put towards it or track record.

Jon Guy · Answer

@Michael Ealy this doesn’t answer anything about the questions that I asked but thanks for the input

John Corey · Answer

Before going to far with the conversations, understand that promotion of a passive investment can be a regulated activity. Check out this link for a summary of the legal issues. https://www.investopedia.com/terms/h/howey-test.asp

Once you know how to legally build a network of possible investors and when to stop before getting a securities lawyer involved, you are good to go. Understand that the wealthy who are savvy investors will now what you should be doing. If you are unknowingly breaking the SEC or state laws, the smart money will avoid your deals. Your actions could put them at risk of a loss because of the possible legal action involving the investment.

The devil is in the detail. You can scale up. It just takes a bit of time to understand the rules of the game. There are lots of funds out there for people who know the game.

Charles Seaman · Answer

@Jon Guy it sounds like you have knowledge and expertise, but lack significant capital.  I can relate to that position.  Being that family members aren't an option, start with the rest of your inner circle and see who has access to capital.  If that still doesn't yield any results, then start meeting new people.  You can attend real estate networking events (ex. REIA's, Meetup events, etc.), become a member of multifamily groups on Facebook, and you can also become a Pro member of this site and then post in the Marketplace forum about your need for a money partner to see if any of those options help you find any potential partners.

Keep in mind that you'll need to offer any of these people value, so figure out exactly what your value is before you contact them and be ready to convey that to them.

What are different ways to partner with somebody?

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