Creating an effective team?

Question

Background:

I live in San Francisco, California. Things are pretty expensive around here,
Initially i wanted to go solo on a couple projects so i went to the auctions and got over bid many times. So in order to increase my buying power. I decided to create a team, I've found three people so far, including me.
1. 26. I own a small business that makes bacon and sausages. i have about 100k. I am currently paying myself 3k a month and re-investing the rest in my business.
2. 23, my younger brother, civil engineer working for construction department for the city of san francisco. he only has 30k in the bank. and 3k a month.
3. 33, my friend also a restaurant owner. he has a house under his name. paid off. valued at 700k. i don't know how much he makes a month.
(4). 49, mentor, General contractor. he is the uncle of my childhood best friend. who passed away. He wont be able to help financially because he has mortgages out on 5 houses. But he will be doing our constructing, help finding leads and advising.

Our goal: To flip property outside of San Francisco, earn capital and re-invest into more property.

The question(s): How should i utilize my team best? I want to know what is the most expensive house we can buy? with some left over for taxes, insurance and repairs?

Brandon Turner · Answer

Hey Gerald L. -

You sound like you have quite the team developing!

My thoughts, for what they are worth:

1.) Flipping is like Black Jack It's fun, but over time the house always wins and the investor always loses. You might win once, or twice, or even ten times - but you could lose it all in one hand.

Unless you find ways to beat the house odds.

That's done through proper Math. You must guard against every possible contingency. Have multiple exit strategies. (See my upcoming post on the BP blog tomorrow (Sunday) as it's about this).

2.) It sounds like your small business that you own is very successful. I would think hard about throwing money into real estate flipping when you are already really good at one job. Unless you hate your job. But Flipping IS a job, and takes a lot of practice to get good at. I think for sure you should invest in some real estate - but flipping might be risky for what you've already built. But -if your heart is set on flipping, and you've done the proper research to beat the house odds, then -

3.) Your friend with the 700k house - could he get a Line of Credit on that house? If his job situation is solid and banks like him - he could easily pull out $500,000 in a line of credit or loan. Add that to the $130k between your bro and you and you've got $630k. So, you could find a house for $350,000, sink $50,000 into it, and have $400,000 total invested (leaving you with a few hundred k for emergencies).

Another way to look at the guy with the $500k - could he be your "private lender?" he lends you money on homes for an interest rate of like 12%. That way, he is purely a passive investor - not splitting the pot with you. Sometimes having a team can make too many cooks in the kitchen.

Finally - what price range are you looking at? Where I live - $500,000 can buy you a twenty unit apartment complex. I'm guessing down in San Fran, that will probably get you a shack. :) But you said, "investing outside of San Fran" so what's your goal?

Anyways, what are your thoughts? Be sure to tag me in the response ( @Brandon Turner ) so I see it!

Thanks and good luck!

Creating an effective team?

1 Reply