How would you handle this opportunity if you were me.

Question

Hello everyone, Since Mid 2015 I was educating myself on how to obtain stressed, cheap, ugly SFR to fixing them up, rent them, refinancing and do it again – that was my plan for 2016. However, on the last week of December during a table conversation I was expressing my RE ideas to a friend at my uncle's house - let's call him "my rich uncle" and my rich uncle out of no where expressed the interest in putting 300K down if I would put some skin in the game and buy an apartment complex instead. That's it. He didn't mentioned where, when or what he is looking to get out of this. Keep in mind he's been a very wealthy man half of his life and he is in his mid 60s now – so he is also a very wise person. So, since January of this year I started reading and I've been trying to absorb everything in regards to MFR in order to present him a deal, but almost every day I come up with new ideas on how to use this opportunity but I'm stuck there. I'm going to meet up with him this coming weekend and I want to lightly touch the subject again just to make sure he still committed and that I can count on him once the deal arrives. I do have one question for everyone here. Let's say I find a property worth $1M, would you say it would be better for him to buy all cash and add me as a partner and I would pay him the interest for 15-20 months until I raise rent$ etc etc, then refinance with bank and buy my uncle out? Or should I use some his $$ and mine as a 25% down payment on a 2nd deal, then recover our down payment as soon as possible and reinvest on a 3rd property?

What would you do, what other deals would you bring to the table? Let me know your thoughts please.

Thanks,

Jeff.

What would you do, what other deals would you bring to the table? Let me know your thoughts please.

Thanks,

Jeff.

Account Closed · Answer

I would not solicit any more opinions here. When you talk with him again, ask him what he wants, as he will be the one fronting the money. Ask him outright what he wants out of the deal.

Jeff Chapz · Answer

I just realized that Account Closed replied earlier this morning and I wanted to say thanks to all 3 for sharing your thoughts. I really appreciate it.

Obviously I have a one time opportunity to make things move forward. I see him once a year... if that.

Thanks again guys.

Jeff Chapz · Answer

Thank you both for your inputs and believe me both of you have good points. If I go back and ask him what he wants, he might I ask show me some potential deals. So, I think I need to be prepare for both scenarios. I'll probably print out some deals from loopnet and show him how he and I could make something happen. I don't really think he is interested in making $$ out my deal, but he certainly wants to see I'm serious and careful how to invest his $$.

David Faulkner · Answer

That is awesome of your uncle to give you this opportunity and learning experience. I would say you should research several partnership arrangements and what competitive terms for those arrangements may be. At the least, propose one with him as and equity partner at XXX terms and another with him as a lender with YYY terms, but make sure these terms are market competitive and not so much "uncle" terms. Then present those options to your uncle to frame the discussion. Why do it this?

1) To practice structuring partnership deals that are realistic. At this point your investing career, focus on gaining experience and knowledge more so than the return you will make vs. your uncle. Future return on that experience will be far higher than your return on dollars.

2) If you come to the conversation prepared with these options, you will look more professional and there will be a higher probability that you will reach an agreement. Same goes for if/when you find an investment deal ... go to your uncle prepared with documentation of your detailed analysis, due diligence, and plan.

3) If successful, then you can show this to future investors (with your uncles permission) after the fact to demonstrate that you know how to pull a successful deal and make your partner(s) a decent return.

4) Partners that make money are likely to partner with you again. Partners whose investments are viewed and treated as a gift are not, even if they are related.

Naveen Desai · Answer

@Jeff Chapz,

Firstly, Wish you all the best in all of your RE ventures.

I wish I have that "Rich Uncle" of yours and he proposes to invest with me, by just talking about my Idea to him. :). Well, I dont have "that" Uncle. Lucky you!

Remember:

It is surprisingly easy for people to offer to give you money. It is surprisingly difficult to get them to repeat!. [{ tweet this! }], lol. So you have to get it the first time. Which requires wealth of knowledge in any field as such and even more so particularly in RE. If you have not managed or not dealt with property management company, there is too much for you to catch up with. Putting the numbers on the paper and analyzing numbers based on existing facts and how you can improve the performance of the property is science and an art. Hope you are ready for it.

Sorry- got little diverted, but wanted to share the thoughts. Coming back to your question, of what strategy to use.

Even before getting into the deal and partnership, you are thinking of a strategy to get help to start investing and soon in 2-3 years buying it back and owning it all yourself. I would not think in that way. Rather I would think about becoming a partner ( equity and some down payment), and grow alongwith the partner. Usual lifecycle of a property should be to improve the property to reach the NOI goal which depending on the size and price may take from 2 yrs to 7 yrs, but once it hits the NOI, start preparing to sell that proprety and lookout for the next best investment. At the time of investing in that next property, you can decide if you like to include your previous partner or should do alone. I think that is a fair deal for initial help you are getting from your partner.

Hope that helps.

Thanks,

Naveen.

How would you handle this opportunity if you were me.

How would you handle this opportunity if you were me.

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