All Forum Posts by: Christopher J.

Thanks for the replies folks!  It is really helpful to hear the perspectives.  I haven't made a decision yet and these are great thoughts to guide me.

2 people. One has money to invest in rehabs but has no skills. The other is a contractor with the skills to rehab but very little cash. What would be a fair financial arrangement for the 2 to partner in rehabbing? I realize the investor can just hire the contractor but I want to be more creative. I want the contractor to share in the risk and reward for motivation and so the contractor's interests are aligned with the investors. Are there any standard arrangements so both can share is the risk and reward? Are you or have you been in a partnership? What were the general terms and how did it work out? Thanks!

Thanks for the feedback. I should have phrased my question better. I'll try to improve... Ignore the liability - I think I understand how to shield natural persons from liability (e.g. through an LLC instead of an LP).

The situation is more such that I have some software friends with money who want to diversify into real estate but have no clue how to do it (call these the "investors"). I would help them by essentially being the manager of the money (call me the "manager"). So say 4 of them each contribute $120K and I contribute $20K for a total capital of $500K. I would use this money to purchase a property, or properties, and we would each get a 20% ownership stake. I would get more ownership compared to my contribution because I run the investment. Is that fair?

I understand we can agree on whatever but I'm trying to understand if there is a typical split for this type of situation or what would be a fair way to split it.

An analogy would be a hedge fund where the manager contributes very little of the overall capital but gets 20% of the profits because they are the manager.

Say a limited partnership is formed to purchase a rental property. I understand it's typical for the general partners to contribute less money compared to their interest in the partnership since the general partner will manage it and take on the liability. Example:

Limited partners contribute 95% of capital and get 80% interest.
General partner contributes 5% of capital and gets 20% interest.

I just made up the percentages but they seem reasonable. Are they? Is there a typical split in the industry?

Thanks!

Thanks for the confirmation, Stephanie! Yes, I have family on the peninsula so I'm pretty familiar with the ferry and highway 104 :)

I've analyzed a few properties via Redfin data there too but, as a new investor, buying more locally seems to be pretty universal advice.

A relatively safe 5-6% return isn't bad these days from an pure investment standpoint but, reading all the real estate books, I was expecting more.

I would like to buy my first income property...I'm focusing on 2-4 unit residential in Seattle. I'm reading tons (just found this site via Frank Gallinelli's books and it's awesome!), talking to friends who invest in real estate and analyzing the market data. The market data has me totally discouraged.

In the last 2 months, about 24 properties of this type have sold in the area of Seattle I'm focused on. The average CAP rate is 4.2% based on NOI = 60% of gross rents (I know every property is different but I'm told this is a decent rule of thumb). A typical example is triplex with $35,500 in gross annual rent for $500,000....

35,000 * .60 / 500,000 = 4.2%

I'm calculating that I'll need to put down 40% on a deal like this to achieve a bank required debt coverage ratio of 1.2!! With NOI growth of 2.5%/year my IRR is like 5-6%. I can play around with the numbers a bit but it doesn't get much better!!

Am I analyzing this wrong or am I just in a bad market to buy income properties? I don't want to be greedy but I want to earn more than 5-6% here!