All Forum Posts by: Ehab Shoukry

@Jeff Greenberg to answer your questions...

1. The value in my opinion is 50% ownership in a multi that I would not be able to buy on my own and is in an area that is appreciating. 

2. I am handling all of those items you mentioned and there is no specific compensation for doing that. 

3. I still have to pay back the 50% but a you mentioned it will take longer now. 

4. My partner is putting up all cash for closing, rehab etc. 

5. Totally agree

I think the alternative is to not do the deal or structure the partnership in a way that you think would be more fair. I'm probably not aware enough of another arrangement that would be more balanced. 

@Account Closed based on the arrangements you described I feel like I have a pretty good deal. I'm not getting an acquisition fee but I'm also not putting up any money to buy the property and have very little financial risk except for co-signing on the loan. 

Thanks. 

Thanks for all the continued great feedback.  I built out an excel spreadsheet to really help me understand what my cash return would be and how quickly would I pay back my 50% portion to my partner.  One aspect that does sweeten the deal is that I would be collecting property management fees as part of the deal.  That means that whenever I find and sign up a new tenant, I get the first month's rent as a commission or in this case part of my owner distribution.  

So on a vacant 5 plex that we are purchasing where each unit rents for $900 a month, I would get a $4,500 commission once I fill all the vacancies.  Additionally I would get 7% a month for property management.  

Also originally our arrangement was that my 50% portion of net income would go back to my partner to pay back my half of the initial investment but we renegotiated and I'm going to keep half of my portion and pay half back to him.

So between the property management fees and receiving half of my 50% portion of the profits, I have the ability to get a good income pretty quickly.  After two years using this model, I would have payed back my portion of the initial investment and I'll be collecting my full half of the profit PLUS the property management fees.

Of course, once our business grows much bigger I will gladly give up the property management fees to a real property management company but at least we would have been accounting for that the whole time.

Win-Win.

Ehab

It's interesting to hear all the different points of view. I did go back and talk to my partner and we modified the payout structure so I would get half of my distribution monthly and the other half would pay back my partner. This will help me to build my passive income so I can go full time one day. Thanks. 

@Chad U. I really like the idea of paying back my partner's investment if/when we sell the property.  That way it allows me to start receiving income right away and move faster toward replacing my W2 income.  

My partner and I both agree that the goal is to get my income replaced through REI so I can focus full-time on this and start making both of us even more money.

Thanks!

@Kathy Stewart Thanks Kathy.  I was really trying to understand what others have done and if this seems to be in line with other types of partnership deals.  I am definitely thinking big picture so need an arrangement that will be win-win for both in the long run.  Thanks.

@Joel Owens @Ronald Perich that both sounds like good advice. Essentially my partner is giving me an interest free loan to pay my 50% portion of the initial down payment. I would be paying him back through our profit. I also would not necessarily have to manage the properties because the option to use a property management company is always there. 

We do have plans for bigger and better things. We are looking at two multi family deals so I believe the returns will be worth it over time. 

Thanks. 

@Jeff Hamel we would both be signing the loan since we are buying in our LLCs name.  Since my partner is remote, I will be handling the asset management.  Essentially he is just a money partner since I have the investing experience in my area.

I'm interested in what partnership arrangement would be more fair if the one I have doesn't seem to be?  I didn't think it would be fair to have him pay all the money and we split the profits 50/50 without me contributing capital as well.  I guess one spin on this could be we both be 50/50 partners with my partner providing the capital and we get paid equally but when we sell the building, he would recover his initial investment and we split the rest.

Again...I didn't think that would be fair to him though.

Thoughts on a different partner arrangement?

@Percy N. if rehab is required my partner would put up the money for that.  I would have to pay back 50% of that just like the downpayment.  I would manage the rehab.  Vacancies are a risk but our arrangement would still be the same--it would just take me longer to pay back my 50% portion because the cash flow will be lower.

Hi all -

I'm sure there are all sorts of partnership arrangement options but wanted to get your thoughts on this one.  I have a friend who lives in another state that wants to partner on multifamily deals.  He is going to put up the money and I am going to find the deals.

We would be 50/50 partners and the arrangement would be the following:

1. I would find the deals and he would put up the financing for the 20% downpayment.

2. The monthly profit from rental income would be split 50/50 whereby I would use my 50% portion of the profit to pay him back my half of the downpayment.

3. If I chose to manage the properties I would get a management fee for doing that work.

4. Once I've paid back my 50% portion of the inital downpayment, I would actually start getting paid on the investment.

To put it in real numbers, if we bought a $100k property my partner would put up $20k downpayment to buy the property.  If the property makes $10k a year profit, I would pay back my partner my half of the profit ($5k) until I pay him back $10k which is half the downpayment.  At that point, we are both equally invested in the property.  Essentially in this scenario, it would take me two years before I actually got paid on the property.  

I'm interested in what you thought about this arrangement and if others have done things differently.

Thanks,

Ehab

@Gita Faust 

Gita..it sounds like you're saying that not only can you depreciate but I SHOULD depreciate the property in QB as well.  I shouldn't just leave it up to my accountant to do on my taxes and not actually enter it in QB.  Do you do all of your properties at one time at the end of the calendar year (December)?

I found this table to help me know how much to depreciate based on when I purchased the property: https://www.irs.gov/publications/p946/ar02.html

Thanks.