First timer: RE partnership

[Harry Campbell]

Hi there,

I know there are lots of posts on partnerships but I wanted to get some feedback on a specific RE partnership I'm looking into. I bought my first property in 2009 at 23 and lived in it for 3 years(renting out 2 rooms during most of that time). Now that I've moved an hour north, I rented out that property and am getting a decent monthly return(~$300) which is pretty awesome for a condo in SoCal. So I have a little experience with that side but nothing on the partnership side.

I've been talking to a couple people and I finally found a deal that I think I'm interested in. Here's how it would work: From my end, it would be almost completely passive. My friend who lives in TX goes in and finds properties and buys them with all cash. If need be, he fixes them up and sells to me at a fair price(slight conflict of interest here). I would get the financing and initially pay for everything. Later, we would form an LLC and split everything(downpayment, closing costs, expenses, profits) 50/50. I think he tried it 50/50 from the start, but it was not working well since it's easier to buy the properties all cash(which I think makes sense). So he wouldn't sell the property until he has tenants lined up and property is ready to go. I think this is a good thing since up until this point, I haven't put any money into the deal.

Once the property is ready, he would sell to me(he needs me b/c I have w2 income, he does not) and once the property is sold, he would give me half the downpayment and half the closing costs??(need to check on this but he is a licensed RE agent).

The property would be transferred to an LLC and he would provide prop management(8%), take care of maintenance, etc. Should things go well, it would be completely passive on my side. I like that he is in 50/50 on everything so he has incentive to not only find a good property but also one that will provide a return. I know there's some risk but I am in CA so it's nearly impossible to find a cash flowing property. The properties he's looking at are in the 100-150k range so it's a relatively small investment which I like since I don't want to drop 50k on my first RE investment(which a lot of the past investments I looked at required)

Anyways, I've never done a RE deal like this so just wondering if anyone has any experience or any questions I should ask.