I am still in the learning stages or real estate investing and am leaning towards either turnkeys or BRRRR. I currently live near Roanoke, Virginia and my Brother lives in North East Florida (Palm Coast area).
I happen to be in a place financially where I could start to buy a rental property or two, and hopefully more down the road, and my brother works in residential construction. My thought is to partner up with my brother, I'd provide the funding and he'd provide the labor, and then we'd have to come up with a way to make that work for us both financially (definitely get a lawyer and cpa involved).
My brother would need to be paid for the labor but would probably also like to have some sort of investment in the properties as well. If this isn't something that will likely work, then I may just go the turnkey route. I would be very grateful for any advice anybody is willing to give. I know there a ton of ways to do a partnership, but does anybody have any experience with this type of partnership? I'd be very appreciative for any advice. Thanks!
@Kyle Nield You can do a partnership with him (though I agree partnering with family is risky business). I would make it a true partnership... Not confuse it with an "employee" relationship. Make sure both of you have skin in the game and expectations clearly spelled out.
I am assuming you would be investing in Florida where your brother lives since he will be providing the labor? Would he also, then, be responsible for finding and vetting the deals?
I am setting up a partnership with my Dad. He is in Oregon, and I'm in Williamsburg,VA. I think working with family can be successful... after all, that's what this country is built on... family businesses! However, you do need to have a clear understanding of everyone's goals and roles... and it needs to be in writing.
Goals is a good place to start. What are your goals? What are your brothers? Is it your goal to re-invest profits to grow the business and scale up... or is your goal to provide side income for your brother and yourself?
Establishing clearly defined roles and compensation is the next step.
For example, right now, you are the finance guy. You would be in charge of accounting, hiring and working with a CPA to structure the business and finances. You would provide yourself and your brother with quarterly financial statements and make sure the taxes are filed every year. You would establish relationships with banks and other lenders. You would also analyze the deals (BRRRR or flip) and plan the financial side of new acquisitions (loan or cash). How are you going to be compensated for your work? Will it be a flat fee or a percentage of each project?
Your brother is the Project Manager. He determines the scope of work needed on each property, vets the contractors to hire, and makes sure the project stays on time and on budget. Project Managers typically get paid a percentage of the cost of each project (15%) and might get a percentage of the profit as an extra incentive.
Other roles include: Acquisition and sales manager (who is finding the deals and working with the real estate agent to get them sold?) and property manager (typically get paid 10% of monthly rent).
Furthermore, you will need a plan about how to split the profit and share the losses... and THAT needs to be in writing too. Will profits be reinvested? If so, how much? Who will pay for losses? Are they to be split 50/50?
You might try just one deal with your brother and see how it goes. You will both learn a great deal about what works for you individually and get a better understanding of what the partnership will entail.
@Kyle Nield Communication is key in the partnership. Start with a clearly defined joint venture document that defines all roles, capital splits, equity splits, timelines, and what happens when things go south. Get those conversations out of the way now before you get in a deal. Also, I'd get very clear on if this is an investment, or if you are employing your brother on the deal. You really aren't that aligned if he's thinking this would be a source of steady income. If that is the case, hire him as a contractor to do the work on your project rather than making him a partner on the deal.
Hey @Whitney Hutten, @Helen Lowery, @George W., Thanks for the advice! I really would like something to work out between my brother but what you guys have said gives me a lot to think about. I'm hoping to make this as passive for me as possible since I still work full time and plan to for at least the next 10 years.. My goal with this is to have it be a part of my retirement (I don't necessarily expect it to make me much now), and hopefully it will allow me to retire or partially retire a little early as well when the mortgages start to get paid off. Hopefully I'm headed in the right direction. Thanks again!
@Kyle Nield You can do a partnership with him (though I agree partnering with family is risky business). I would make it a true partnership... Not confuse it with an "employee" relationship. Make sure both of you have skin in the game and expectations clearly spelled out.