Buy and Rent partnerships?

[John C.]

Hi again BP! Thanks for all your advice.

I have done one buy and Rent investment. So far, its working out excellent! And I have plans to do more, but have recently been approached by a similar investor who would like to partner up. Tell me what your thoughts are if this is wise or not in general.

We find a property that will make about a 30% profit after costs every month. I put my money down. I hold everything in the deal and the partner signs together on the Title. We pay all expenses out of a single account and input all rents. We split that 50/50 at the end of each year (or buy more) until we decide to sell. I take all profit or loss of sale at that time. Any needed repairs etc comes from that same account.

Is this good enough for a beginner such as myself? The Condo will easily rent because of our location, I just feel a little greedy because it seems like Im taking all the risk and all the partner has to do is manage it? Im actually not even sure HOW much risk I am taking, but I know it will rent well, and I do actually trust the partner, he has many years under his belt doing this on his own.

Thoughts?
(Thanks!)

[Dion DePaoli]

That was a little hard to follow but allow me to run through this with you.

Originally posted by John C:

We find a property that will make about a 30% profit after costs every month.

Finding a property that nets 30% per month or a 360% annual yield I don't think is what you meant. You will have to update this for us.

Originally posted by John C:

I put my money down. I hold everything in the deal and the partner signs together on the Title.

If your partner is on title with you, you don't hold everything in the deal, he is on title so it is joint. I am not sure if you were getting a mortgage or this was a cash purchase. If this is cash than the only thing to hold is title.

Originally posted by John C:

We pay all expenses out of a single account and input all rents.

We split that 50/50 at the end of each year (or buy more) until we decide to sell. I take all profit or loss of sale at that time. Any needed repairs etc comes from that same account.

It was not made clear how you two would join together. I noted you mentioned there is one bank account but did you joint venture with each other or did you both join in an LLC? You will want this relationship documented and memorialized in one of those fashions.

So all income and expenses are via the one (joint?) bank account. The plan is hold distributions off until the end of the year. Once the year end comes around split net profits at 50/50. So the property manager is not taking any fee during the year and feels adequately compensated by the split at the end of the year.

The portion there of you taking all the profits or losses is a bit counter intuitive to splitting things 50/50. If this was suggested by the partner, I would kill this concept right now.

Originally posted by John C:

Is this good enough for a beginner such as myself? The Condo will easily rent because of our location, I just feel a little greedy because it seems like Im taking all the risk and all the partner has to do is manage it? Im actually not even sure HOW much risk I am taking, but I know it will rent well, and I do actually trust the partner, he has many years under his belt doing this on his own.

Is it good enough for a beginner? It can be but you need to addressing the missing pieces.

Originally posted by John C:

I just feel a little greedy because it seems like Im taking all the risk and all the partner has to do is manage it?

That is an interesting statement. I would think he feels greedy since you are taking all the risk and all he has to do is manage the property and he thinks that action is worth 50% of the profits. A little bit of this does make me feel like the wool is being pulled over your eyes.

The risk you are taking is loosing your investment and possibly additional capital if you get sued or have additional expenses in this venture.

The part of him being trust worthy because he has done it for years on his own is bit off center. If he has been doing it for years and has much more experience then him why does he need you?

Let's assume he needs your capital. Problem it seems, he is taking no risk, you are. Where is his capital if he is such a successful investor doing this for years?

IMO, this project is a little sketchy but some of that might come from the OP text. Perhaps there are some fillers that could make this sound a little better for you John but at its face value the partner has all the upside in this deal and you have all the risk. That is not a good deal.