All Forum Posts by: Brian Kantor

Good luck, @Erick Medina!

@Chris K. Really appreciate the detailed response.

I have considered debt agreements and am already using these in other possible deals. Open to considering alternative structures here, but the key reasons for looking at an equity partnership here are:

• With regards to past debt partnerships I've been in discussions about, the lender wants a relatively short holding period, which I would be unable to pay back quickly enough in this instance with standard cash-flow. The only instances in which these do seem to work for me are when an up-front loan can be replaced by a cash-out refinance from a traditional lender.
• In other words, equity partners are totally fine with slow payback over long time horizons, whereas debt partners are not.
• The people in question for this specific instance have explicitly requested long-term "unlimited" upside vs short-term fixed upside
• Also, I am comfortable at this point doing a BRRRR with my own cash, but am not yet comfortable enough to be relatively certain that I'll be able to pull enough capital out to pay-back a short-term loan without getting burned.

With all that said, my sister-in-law is a contract attorney with a lot of experiences in creating operating agreements. We often barter services in our respective areas of expertise, so it would be a non-issue for her to draft something for me at no cost.

This would not be a partnership in the legal sense, but would be an LLC with each of us serving as co-managers. Given that I am the decision-maker, any thoughts you have on how to word that my recommendations carry more weight than theirs (to reduce deadlock), would be great to hear.

Thanks again!

Hi, @Uzma Abdullah. Have you considered house-hacking into a small multi-unit so that you can have the best of both worlds?

I'd suggest checking with your 401k provider as to whether that loan is simple or compound interest and what the % is. You can also take out a loan against your stock portfolio if you are leery of using your 401k in this way. I'm not saying that you shouldn't do a 401k loan, but it wouldn't be the first place I'd look just in case of a worst-case scenario.

Hey @Hunter Bradford. I just mentioned this on another thread. I don't know all the ins and outs of this, but a friend who is a financial advisor for HNW clients told me recently that you can "park" money from a 1031 exchange into a REIT temporarily to buy yourself more time to find another investment property. If you work with an advisor you may wish to ask them about this. If you want his contact info, DM me, and I can share.

@Christine Zharova, I don't know all the ins and outs of this, but a friend who is a financial advisor for HNW clients told me recently that you can "park" money from a 1031 exchange into a REIT temporarily to buy yourself more time to find another investment property. If you work with an advisor you may wish to ask them about this. If you want his contact info, DM me, and I can share.

@Zachary Paschke and @Annie Drommond thank you both for the life insurance advice. Someone had mentioned to me once, but this clarity is helpful! Regarding 50/50 ownership, I mean, sure I'd love to own as much as possible, but I also don't want friends to feel that I am raking them over the coals. Is that structure common? 

To put it another way, let's say you knew nothing about real estate and had a friend with experience who wanted you to put up 90% of the cash for a 50% ownership stake, would you do it?

Do you offer any benefits to them about recouping their initial investment first or in some other preferred way (ie, they get a higher % of cash-flow for the year 1 or something before it reverts to 50/50 split)?

Thanks again!

Hi, everyone! As I've gotten more and more experience in this world, friends and family have asked me how they can work with me. Many have money, but not the time or desire to do this on their own. As such, they've asked me if they can supply the capital, I do the work, and we share in the upside.

After pondering for a while on what a fair and compelling partnership agreement might look like, here's the outline that I've come up with and would love to hear everyone's thoughts and feedback.

• Number of properties: Partnership is only tied to one single property with the option to work on future properties together as separate entities.
• Legal entity:  This property and any possible future property held in their own individual LLCs.
• Initial investment: Partner provides 90% of the total estimated cost to purchase property + renovations needed for it to be rent-ready. I provide 10% of the capital so that I have some skin-in-the-game.
• Ownership:  The above investment, however, equates to their owning 80% of the property and me owning 20%. In other words, I am getting a 10% kicker for doing all the work.
• Incremental renovation costs:  To "keep me honest" any renovation costs prior to that first tenant that exceed a 20% buffer are split 50/50. In other words, if I estimate that I can buy a property for $70k that needs $30k in renovations, should renovation budget go over by more than $6k, my partner and I split those incremental costs 50/50.
• CapEx/Emergency fund: We agree to set aside 100% of excess rent revenues towards 1 year of expenses OR 100% of potential CapEx expenses for 30 years (whichever is higher). In other words, we don't pay ourselves until we have a nice cushion of cash set aside for major repairs and/or tenant issues.
• Cash-Flow: After expenses and CapEx/emergency, we split cash-flow 50/50
• Cash-out-refi:  If we both agree to do a cash-out refinance for the purpose of acquiring a new property, that new property maintains the 80/20 ownership split. Incremental costs that might be needed for that additional property paid in that same 90/10 ratio. New property held within its own LLC and essentially we start back at the top of this list.

Additional notes: When one member passes away, the surviving member gains full control of decision-making process on existing properties with regards to sell or hold. Heir of deceased member gains same ownership and cash-flow % of that partner.

Obviously, we'd have an attorney draft this up and also create an operating agreement for the LLC(s).

Yes, there would need to be details on reporting cadence, etc, but didnt get into that here.

How can this be made better? Any thoughts or questions?

Thanks!

-Brian

@Sanders Rohs, knowing the area is a huge plus, no question. But with that said, if you're having trouble finding deals that work for you in your local market. Consider investing elsewhere. BiggerPockets' David Greene has an amazing book on the subject.

For context, I live in Brooklyn, NY and invest in Detroit, MI. I had no trouble making that work, and I have never actually been to Detroit (although I would have visited if it wasn't for covid).

Net-net, don't limit yourself to your own backyard if the numbers don't add up.

Hey, @Kameron D Miller. Try doing a Google search for probate and divorce attorneys in your area. Call them up and remind them that they have clients who often have properties that they need to get rid of quickly as part of that process. You can be there to solve that problem for those clients with a hassle-free, quick closing, not having to hire an agent and list on the MLS.

I offer attorneys a finder's fee of $1000 if I buy the property, but there may be an ethics issue with them accepting. Full disclosure, while I have gotten some leads here, I have not yet closed on a property in this way, so I don't have a full report to share. So far, though, the results look promising.