All Forum Posts by: Nghi Le

Hi @Michael Hartman ,

Welcome to BP!  I'd love to meet and talk to you in person; maybe I can help alleviate some of your concerns about investing in this state and also help you network with more people/groups.  Plus, it looks like you might be wholesaling in an area that I'd like to do some flips :-)

I missed the REIA meeting on Monday, but I am planning to attend this meetup tomorrow if you're interested:

http://www.meetup.com/SnoCo-Connected-Real-Estate-...

Otherwise I'll see you at the REIA meeting next Monday?

@Peter MacKercher If I could make do without partnerships, I would.  But as a new investor with not much capital or time, my choices are either do a deal with a partner, or do no deal at all.  And I'm very conservative and risk-averse, so spreading the risk and having extra sets of eyes throughout the deal just makes me feel better.

FYI all of my partnerships would be for flips.  Does a buyout agreement still apply for that?

I want to do a partnership with a few people, but I hate complicating things, especially as a new investor who's already overwhelmed and working a full-time job.

I've been recommended to have a contract on the side to lay out the terms of the partnership, but if our partnership terms change (and I imagine it would from deal to deal), would I have to go through an attorney each time for that? Same (or perhaps even bigger) issue with creating an LLC and having the partnership depicted in the Operating Agreement.

I have a good amount of trust in people that I would consider to do partnerships with. Could we (2-3 people) just enter into a PS&A contract with all of our names, and then split up the profits after?  What are the risks to putting all of our names on title without a contract, both from a legal and tax perspective?  Would it confuse the title company at closing?  Would it confuse the CPA who takes care of my taxes, even though I'd show all of my split income/expenses in Quickbooks?

@Account Closed We measured the house ourselves and the square footage of the house without the addition matched that listed on the county.  We also found the original building plan of the house, which did not include the addition there (but did see a patio in that same spot), and we didn't see any permits for an addition.  The only permit we saw was for a garage conversion.

Just wanted to give an update on my situation.  We ultimately ended up tearing down the addition because we kept uncovering new problems with it:

• We couldn't bypass the city and go straight to the county to get the square footage accounted, and the city of Seatac has a reputation for being unreasonable.  There was an investor down the street who took an additional 5 months to complete his project because the city told him he needed to do a few things and get extra permits, then changed its mind and said to do something else, then changed its mind again...
• We found out that the addition was built on top of the septic drain line.  So we'd have to get the city's approval to let it remain there or dig and reroute it.
• We found out the roof wasn't exactly done correctly.  The ceiling covered up a gutter that was running through the addition, where the roof of the original house connected to the roof of the addition.
• And some more little things...

The demo of the addition is mostly done now, and the project is about 60% completed. The house itself is solid and has brought several good surprises, and we've gotten compliments from several investors (I've invited a few to check out the property during the work-in-progress). It looks like the market is picking up and we have comps that support a higher ARV now, so we should be able to get a little more profit out of it too. Not too bad :-)

Mark Kohler just posted in his blog about this as well:

http://markjkohler.com/1099-rules-for-business-own...

So I purchased my first flip in December in my own name and paid my general contractor (who has an LLC) two payments before the end of 2014 (and still one more payment to go this month). Do I need to issue him a 1099?

Hi @Account Closed !

Thanks for the reply.  I'm glad you see my proposals as interesting; I was afraid it might be taken the other way.

I should have mentioned that I already have some contractors in mind to set up this partnership with; I'm actually meeting with one later today to talk about it.  That's why I wanted to hear some thoughts to see if others thought what I'm offering is intriguing, fair, and beneficial to both parties (as well as low-risk).

I realize this topic has been brought up several times (will link to them at the end of this post for those interested), but there are some things involved with my situation that hasn't been discussed yet, so I thought I'd start a new topic for it.

In WA state, there is a law that requires a licensed contractor on title if you are flipping properties (this post discusses it extensively).  Most established investors I know have gone out and just paid to get a contractor's license (along with bond/insurance).  However, I'm a relatively new investor and I'm also doing this part-time in addition to my full-time job.  I don't feel a need to invest extra time/money to get the license until I have a lot more volume and/or become a full-time flipper.  So, one of the ways I thought about getting around this law is to partner up with a contractor to get their name/company on title.

I've thought of a couple of ways of how to structure this partnership:

• I supply the cost of acquisition (down payment for hard money or conventional/portfolio loans) and the holding costs, and he would fund the rehab. This would help me greatly because with my credit and research on many hard money lenders, I'm able to get good rates and high LTV. However, it's harder and more expensive to get the rehab cost funded, and that's what's been stopping me from going after a lot of the deals I've wanted to do. On the monetary side, we can do a percentage split of the profits, or I can just pay him like a contractor but with a big bonus for absorbing the cost of the rehab until closing. So if the rehab cost was $100,000, I might pay him $110,000-$120,000 at closing (as opposed to draws at the beginning, middle, and end of the rehab). This of course means that he has to have reasonable prices on his rehab (i.e. definitely not retail). I've been lucky and have come across a few contractors that I trust, and I also think that I have enough rehab estimation knowledge to know when I'm being ripped off.
• Complete transparency.  I show him all of the numbers of the flip and all of my costs, and the contractor shows me all of his costs of labor and material.  Then we do a percentage split based on how much money each side puts in (we can do at the beginning as agreed-upon estimates or at the end as actuals).  I think this method benefits both sides if we trust each other and both have good intentions (otherwise there's a lot of danger in revealing your competitive advantage / trade secrets), as he'll learn more about the investing side, and I'll learn more about the rehab side.  Plus, this is even better than wholesale rehab prices; it's rehab priced at cost.  This may allow me to take on more deals than before because of the lower rehab cost.

Any thoughts?

Here are the other interesting/helpful/relevant topics I've found regarding contractor/investor partnerships:

http://www.biggerpockets.com/forums/48/topics/1251...

http://www.biggerpockets.com/forums/67/topics/8270...

http://www.biggerpockets.com/forums/67/topics/1617...

http://www.biggerpockets.com/forums/67/topics/1450...

#2 is something I've never heard before. You don't 1099 your contractor if they're an LLC? Or do you mean incorporated as a C-corp?

@Matt Taylor Does the $35/mo include tax advise too, or only legal advice?