What's the best way to partner doing buy and hold?

Question

I'm new to partnering in real estate, what are some of the strategies for partnering with other investors on buy and hold deals? Flipping seems easy: buy, remodel, sell and split the profit....but long term seems more complicated to me. Any advice would be great!

Chris Martin · Answer

Like I said, it has nothing to do with your post. My post was only to point out what kind of 'partnering' the original poster may see when trying to find the answer to 'What's the best way to partner doing buy and hold?' I said be careful. Someone may put a deal on the table like you said. 50/50. From experience, I've seen some slick wording about income splits that 'creeps' into splits on equity participation. 100% of sales price implicitly (and explicitly by OA if done right) means 100% of equity... unless someone is out to screw the lender. You say:

"Money guy puts up 100% of sale price.

We handle 100% of the work.

Split costs of future repairs. 50/50

50/50 profit split. Money guy takes 50 we take 50. "

So, what I've seen is a dealer (not you) say

Money guy puts in $100K.

The property ultimately sells for $120K. Money guy gets $60K on sale.

Sign me up. NOT.

My post is about that I've seen some clowns attempt this. This example is with one character who I have had dealings with before. The prior dealings were above board and legit. When I challenged him about the equity split, he denied it. But it's in the attorney drafted document. I caught it early enough not to be screwed. But it's a relationship buster.

My point is to watch out.

As I posted, debt deals seem to be really easy compared to one line in a 18 page operating agreement, that was drafted (IMO) with potential ill intent.

James Wise · Answer

I own all of my rentals with a partner who is a G.C. we are 50/50 partners. He handles all maintenence/rehab & I'm a Realtor so I Find The Deals And Handle The P.M we put up equal shares of money & split profits 50/50.

On a buy & hold partnership that we bring in Another partner (silent money guy) the way I do it is

Money guy puts up 100% of sale price.

We handle 100% of the work.

Split costs of future repairs. 50/50

50/50 profit split. Money guy takes 50 we take 50.

James Wise · Answer

The silent money guy is the G.C. & he wants you to do the work but has a clause in the contract taking full ownership?

James Wise · Answer

@Chris Martin  I'm having trouble following. One more time?

Brie Schmidt · Answer

I am a buy and hold investor and do not see it as a business that I would partner on.  I guess if each partner could to 50/50 cash and you had the same mindset (do you pocket the cash flow or pay the mortgage down early) then maybe it could work.  but you would need an ironclad agreement for things like how you handle repairs.  My husband is my partner and we agree on things almost all the time but here is an example. Tenant calls and her refrigerator is not staying cold.  we show up and realize it is a self defrosting freezer.  we chip off all the ice and it is working again for a week and starts getting ice again.  we just bought a new refrigerator for them.  that is not how everybody would approach things and if there is a disagreement how would you handle it?

If you dont have all cash and you need a loan then it would get real tricky in my opinion

Nina Ibrahimbegovic · Answer

I hope you didn't get discouraged from these replies. If you look at other questions that were asked about the buy and hold with equity and cash flows splits, they are very real for what you are proposing. I dont understand why Brie and Marcia didn't agree, but that is their opinion. There are a lot of people who don't want to do the work, don't know about real estate and don't know where to try. This is where you come in, and you are definitely worth the equity and cash flow split if you make the money. I hope you didn't give up on this idea (please research how others have done it). Very discouraging message from Brie.

Marcia Maynard · Answer

We have two LLCs.  The first for 3 units that are in a partnership with family members.  The second for 12 units that are solely owned by me and my husband.  Like @Marcus Maloney and @Bryan H. mentioned, an LLC is important for establishing agreement on how the business is handled and covers various scenarios.  It is best drafted by an attorney.

Before we had our LLCs my brother-in-law died unexpectedly of a heart attack. The properties we held in partnership had to go through probate.  That was costly, time consuming and very stressful for his widowed wife.

I'm with @Brianna S. that what you are describing is not really partnering for buy and hold.

Brie Schmidt · Answer

What your describing is not really a JV - It is more of a advanced wholesaler and I see it as a flat fee payment - not a long term partner.

Unless you have a solid track record of 100+ deals I just dont see the services you mentioned valuable enough for me to give up equity. They are all things I can do myself my having a solid team in place (realtor/wholesaler/GC/PM)

Elizabeth S. · Answer

Great advice everyone. I agree, partnering is very complicated.

@Chris Martin, I'm glad you mentioned that example, doing deals gets complicated and missing those little details is big!

@Brianna S., you make a great a point. Everyone handles those purchases, even a just a few hundred dollars differently and when it's all your money you don't even have to second guess it.

I have a good business attorney so that isn't a problem. I guess I'm looking for more creative ways to partner.

Here is an example of something I'm considering but not quite sure of the structure:

Partner is from out of state, I find the deals, they use their money to purchase the deals, I manage the contractors to get the house rent ready, find a tenant and then hand off to a PM. How would I get paid in there and how would you even know what you to charge that is both worth it to me and the other investor?

What's the best way to partner doing buy and hold?

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