How Do I Actually Create Partnerships!? | Buy & Hold

Question

Hello All:

I'm a Realtor in New Jersey, have been in the business for 4 years now and things have really picked up for me within the last year. I learned about BP last summer and became obsessed. I'm 25 years old, and want to start getting serious from an investment side. I just recently purchased a home. ( Duplex with 70K in equity and will give me $1,000 in positive cash flow once I move out - no real strategy honestly, I got real lucky that my Landlord wanted to unload some of his properties and move back to Israel.) It was a hard process and I got the financing by the skin of my teeth and mostly because of how savvy my mortgage broker is, to say the least. That being said I want to start ramping things up and although I'm becoming good at finding deals, my concern is that I dont know how to structure partnerships! From the looks of it getting another deal financed under me will be near to impossible, so how do I actually structure something that will be beneficial to me and who ever it is I work with??

-Just an example of how uneducated I am on the matter, I technically own a house prior to this deal I just bought. My best friend and I wanted to start investing last year, so we had intentions of buying a triplex. Long story short, he does the financing under his name, I'm not on the deed, we didn't form any paper work that states I'm a partner. Its pretty much all verbal. (BTW it was a turnkey property, neither of us brought money into the deal because the mortgage broker was a partner with the investor so they "Did us a favor". Property cash flows positively but not a deal I'm proud of.) So that being said I guess you can say I own two properties??

- So BP community! My brothers and sisters, please advise me on how to create true partnerships, specially for someone like myself who has the intentions of buying and holding. I have educated myself a lot on the BRRRR strategy but now my minor set back is the lack of understanding when it comes to financing with partners since I'm aware this will take me 3-5 times longer to accomplish on my own.

-Thanks in advance for the help!

Allan Szlafrok · Answer

@Justin Fallas Get everything in writing and clearly spell out the responsibilities of each party. Make sure they correspond to the strength of each partner so the partnership is the sum total of each persons strengths. And have any and all agreements made clear before pursuing a deal. Also networking is key to finding people who would make good partners. Meetups are a great way to meet people who can complement your strengths and fill in some of the gaps in your skill set.

Account Closed · Answer

O boy. So uhm...who's name is on the deed for the first property? (The turkey with your buddy.) That's who owns it. If you have a partnership, and the property is deeded to your buddy, then the partnership should specify your buddy is contributing his ownership rights in the property to the partnership. And with a mortgage, he might not even be allowed to do that under the terms of the mortgage. I dunno - not a mortgage expert. I can say this, without any paperwork, you own nothing. Easy way to lose a best friend. But I know, I know, they would never do that to you right? Best buddies forever and all that? Uh huh. Just wait until he gets a wife and has a kid.

You are far from competent my young friend. Employ a lawyer to help you set up a partnership. It'll be the best money you ever spend. Use that free money from the house you don't own to pay for it.

Contracts save friendships. Lack of contracts can ruin them.

Good luck! Sounds like you already had some with your duplex! May you have much more down the road.

Scott Smith · Answer

@Justin Fallas Thanks!  Feel free to reach out to me any time, always happy to help.

Justin Fallas · Answer

Thank you @Scott Smith . Just finished reading the article! A lot of great tips! The financing end of the partnership is something I have to get much more educated on.

P.s Now I'm interested in listening to your Podcast Episode! Thanks again!

Scott Smith · Answer

@Justin Fallas There are more questions that I would have for you before getting into any recommendations however from what you have stated I would think of taking this in a couple directions, both would involve forming an LLC. Here is an article I would encourage you to read on Joint Ventures.

Justin Fallas · Answer

@Allan Szlafrok LOL Got it. Thanks man seriously. Its a question that I feel has dad me stuck for a couple of months. I work now for a real estate office that specializes in REOs and I've sold many properties that I wish I would have kept. I want to stop wishing now! I have people that will trust me with the private money, but now the part that gets me is knowing how to structure these partnerships so that I could refinance them working with others that can do the financing. Again like you said I guess I'll have to give more since they are taking the loan but I want to at least feel like my strategy is making sense.

Justin Fallas · Answer

@Kyle McCann Definitely! Thanks for the advise. But on the financing end I still feel like its confusing, maybe I'm overthinking it. But does the way financing is structured matter?

--For example I may be able to use private money from family members that want to help me, renovate a property, and have someone interested in assisting me with the refinance. If the loan is solely on them am I still able to claim 50-60% ownership?

Allan Szlafrok · Answer

You can structure the proceeds any way you like i think. He may want a bigger cut because his name is on the loan but whatever agreement you have between the two of you should be binding. Heres the part where i have to say im not a lawyer and this isnt legal advice.

Justin Fallas · Answer

Thanks @Allan Szlafrok appreciate the feedback! One part that is still confusing is the financing part, can I be 50-50% owner if I worked with someone who finances only under their name? Lets say using an FHA or a Conventional loan?  Again with the intentions of buying and holding using the BRRR strategy, for example.

Kyle McCann · Answer

Justin,

You should be setting up an LLC for any investment properties, with or without partners.  It's easy to structure multiple owners of an LLC when it is formed.  Please do yourself a favor and get a lawyer for any future deals with partners.

How Do I Actually Create Partnerships!? | Buy & Hold

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