Third Property (Business Partner Deal)

[Stefan Shirley]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $189,000
Cash invested: $40,000

Purchased this property with a business partner; someone I've known for about eight years. I was able to come to the table with the money and my partner provides the day-to-day property management.

What made you interested in investing in this type of deal?

I've been wanting to purchase a third property but my wife did not want to manage another due to full-time jobs and other fun things we do in our free time.

How did you find this deal and how did you negotiate it?

Every May (8 years now) I participate in a week-long charity bike ride supporting Habitat for Humanity called Cover Indiana. It's a wonderful event and the people who ride are outstanding citizens. The young adults give me hope for our future. My business partner has been riding in the event for the past several years and each year we get to reconnect. He's still in his 20s but was in the Army for the first few years of his life so we have a military connection.

How did you finance this deal?

I put the loan in my name and put $40k into the deal (20% on a conventional loan). It was $189k but some of the $40k went to repairs. This is a 50/50 deal with my partner. He puts in all the day-to-day property management and I've provided the down payment; of which he will pay back his 50% when our property is either paid off or he no longer wants to manage it. Either way, it's a no interest loan to him and he does not charge our business for the property management fees.

How did you add value to the deal?

My add to the deal was that I had two property purchases under my belt and my business partner had none. I also came to the table with all the money. My partner, on the other hand, while younger is a great property manager and is the perfect fit for this part of the job. He's created a rolodex of people needed to help him manage the property with ease.

What was the outcome?

We're looking at purchasing another property ... maybe something in the quad-plex scale. It really depends on my business partner. If he's willing to manage more, I'm willing to front the funds.

Lessons learned? Challenges?

The seller was anxious to get the property off his hands and that should have been a red flag for us. The original asking price was $219k so we offered $185k just to see where it would go. He countered at $189k so we thought it was a great deal (with minimal work). We were able to negotiate some fixes to be done by the seller but after the purchase, we found out the roof had been done by someone who cut corners and we're now paying for it.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

We worked with a local agent, bank, and even insurance company. Because of this, we were able to get a great deal on the loan and insurance.