All Forum Posts by: Nick Phillips

Quote from @Craig Clinton:

hi Nick

There's so many different ways you can structure the partnership as far as %'s of profit.  I'm just going to keep my reply general and hope it helps. 

No matter what split you end up deciding on, get it all in writing in an operating agreement.  You don't want any misunderstandings as far as who handles which responsibilities......especially with family.  

Also, in my humble opinion, I don't think it should be 50/50 split if you're finding all the deals and bringing the funding.  Those are the two most important aspects in investing.  Maybe the split can be:  he get's paid at cost (he breaks even on the reno work he does) and then he gets 35% of the profits and you get 65% or 40/60.

Good luck!

 Thanks Craig, I definitely agree on getting everything in writing. Also, I agree on a higher split percentage for funding/finding deals.  I appreciate the reply!  

Thanks for all the responses everyone. Sounds like unless they provide capital or they have some experience with flipping, doing a profit share without risk on their end doesn't make sense.  I think because they are family, I'm thinking about this differently.  I think they would be happy with a bonus or X fee for managing the rehab (local boots on the ground). 

Quote from @Steven Goldman:

Hi Nick, I am not sure what you are asking. But let me take a stab at a general answer. You can structure a partnership with a contractor any way you want. The question is what is the partners contribution worth? If the partner is going to run the construction job like a general contractor and make a general contracting fee, than you could give the general contractor a bonus for completing the project within the scope of work, estimated cost and on time. In that situation he is more a team member than a partner. If he is really going to be a partner than you have to determine what percentage of ownership his contribution is worth. Keep in mind he should not double dip. Good luck and keep moving forward. 

I appreciate your answer!  I think I'm leaning more towards the partnership route rather than a GC.  

Most postings I've seen is around 50% split however since he is younger and just starting, I'm not sure if there should be a different split there. 

I'm partnering with a handyman/contractor that is an extended family member.  He has 5-10 years of experience and knows quite a bit about general contracting even though he is younger.  Above all, I trust him and we are going to work on projects together.  I feel that he can learn a lot and grow through multiple projects. I would bring the funding and knowledge to acquire properties and he would do the leg work and manage other sub contractors. 

The main question I have is what would be the best way to structure potential deals so he also gains from the potential upside? I want his goals to be aligned with min - profit. Keeping costs low while easy ARV increases a priority.

There's a few options so far that I can think of: 

- Hourly pay + upside (what would be an ideal percentage?). For the percentage, I'm thinking between 20-50% however I'm not sure where would be the best split.  

- Treat just like a GC and have him bid on the whole job? He doesn't have much experience with estimation for a major house flip though.  Also, this method doesn't align with my goals, He would be looking at making profit on the reno and not on saving costs too.  

Also, how would you pay someone on the upside for a BRRRR? Would this be determined at the refi stage where we would take the ARV minus purchase price, costs, etc.

Appreciate any help here. 

Quote from @Nicholas L.:

@Nick Phillips

I think you nailed all the difficulties of BRRRR.

But I'm not sure I fully understand what you're looking for in "an experienced partner that could do the hustle."

You're saying... you'd fund projects, and they'd manage them?  Couldn't a reputable GC do that?  What are you hoping to accomplish?

Partnering is risky too... everything in RE is risky and it sounds like you have a strong understanding of the market.

I do think a GC could manage it yes. I’m curious if a partner that has done this a few times recently would be more helpful though. They could be finding the properties, running initial numbers, inspecting properties, connecting with GCs to find good ones, etc. I would hope they would help with all the leg work involved. 

Hi All, Looking to get some advice on an initial strategy.  Sorry in advance for the long post! 

First a quick background on me, I've had a triplex in the past (2006-2016). Started out as a house hack, then moved away out of state and did quite a bit of work on it. Learned a lot with tenants, repairs ,etc. Ended up paying way too much for it, bad neighborhood, lots of trouble with PMs, you name it.  Took a break from RE and now looking to get back into it with more knowledge this time. 

I've read several of the BP books. The Multi-family books, creative financing, BRRRR, etc. The BRRRR strategy makes a lot of sense to me. Back in 2006, other books just called it value add investing and forced appreciation. I feel this is the best goal for me and my style of investing. I'm not afraid of rehabs having gone through it before. Being able to force appreciation into a property to get equity, refinance at the new value and bring in renters seems like an excellent "exit" strategy. Turn the property over to a PM and keep building your business. My end goal would be to do this on MF properties however I feel more nervous doing this on a multi-family property than a single family. I really want to do Brandon Turner's "Stack" method - e.g. doubling the number of units with each purchase.

While this sounds great on paper, I'm seeing a lot of risk right now: 

1. Higher interest rates: I keep running numbers on properties and they just don't cash flow or the margins are really slim. Even though I'm accounting for vacancy at 5%, if I move ahead and purchase a vacant unit and the unit sits empty for a month or two, the calculations are blown out of the water.  

2. Falling prices: Lots of areas are seeing price declines. Even though I wouldn't be looking to sell, this would affect the LTV that a lender would look at. Say after a rehab in 3-5 months and prices fall another 20%, I might not be able to refinance and cash flow.

3. Running a rehab: Having gone through a rehab before, I feel fairly confident I can do it again.  The part that would worry me, is my lack of time. Having a young family and demanding job. I don't want to spread myself too thin.  

4. MF Construction at 30+ year high - This will create a pretty big supply of Class A rental apartments and also developers are selling SF build to rent communities rather than direct to consumer.  I'm not sure how this will affect the rental market next year but it's on my mind.  

While there are risks right now, I'm still looking to push forward cautiously and not blindly. If I purchased a turnkey property, yes I would avoid the management and risks of a rehab but I would not get forced equity (or would I?). I would have cash invested in the deal that would stay there. One thing I am seeing is rehabbed projects are flooding the market and flippers are selling for a loss.  Also, I'm reading a few startups are getting out of the flipping game (Zillow, OpenDoor, etc)

I've seen this written in several ways. You need the following for investing to work: 

1. Hustle/Time

2. Money

3. Knowledge 

Of these, I feel I have some knowledge of real estate having done a project already and held for 10 years. For the Hustle portion, I'm not afraid to hustle and work hard. However, I currently need to devote that outside of real estate until I can replace my primary income with real estate. This is my end goal. 

So with me not having much time, and having some knowledge, I feel limited to only doing turnkey properties where I can just buy and put a PM in place.  I don't really like this option for several reasons as I stated above. Also, I would run out of capital really quickly.  

The money portion I have been asking around to see if others would be interested in partnering in deals. A few of my contacts are just low on cash right now due to the stock market decline.  I also don't feel super confident right now and would rather use my own money to build confidence and gain more experience. My number one goal with having investors would be preservation of funds and then return on capital.  

Then it dawned on me, what If I provided the down payment/cash for deals and found an experienced partner that could do the hustle?  I have the opportunity to greatly increase my income (outside of real estate). 

Would love to hear everyone's thoughts on bringing in a partner to help with the time portion and to also bring knowledge/experience.  I have several questions on this: 

1. What equity split would you do in this setup?  50/50?  60/40 (cash/hustle)?

2. How would you set up the partnership? Per project? I found TribeVest which would set up the LLC. How would you ensure each party would have ownership interest in the property (keeping everyone honest)

3. Should I only find a partner in my local market? I would like to walk the properties I'm investing in while not required to do so but would be nice to have the local feeling. 

4. Would you do multiple projects with the same partner or spread with multiple partners to de-risk all the investments?  

Any advice would be greatly appreciated and any thoughts thinking outside the box here too! I really enjoy the community here and how helpful everyone is.  

Thanks,

Nick

Quote from @Jeff Costa:

A few things that stand out to me:

* Where are you getting the low 6% interest rate? That seems artificially low.
* Why is the loan term 25 years instead of 30?
* Do you have a written statement from your property manager that their fees are 8%
* Are you paying electricity and gas for tenants? That is not typically done.

It feels like you are trying to make a negative cashflow property become a positive cashflow property by adjusting the numbers, but I don't think you are going to get there based on this calculation.

Hi @Jeff Costa, Thank you for your reply and analysis! 

- I did a quick search and found some loans around 6% and used that as a baseline.  I changed the loan to 7% and amortization to 30 to be conservative. This decreased the cash flow by another $200.  

- Yes, the PM that I'm working with is 8% plus 1/2 of first months collected rents. 
- No, there is a common area for Gas and Electric the owner pays. The biggest utility is Water/Sewer.   

----

So, at first glance I thought this looked like a good deal. I ran the numbers and it wasn't as good as I thought. I analyzed it further and deeper analysis and it's looking more like a bad deal. 

What would be a better way to approach a MF property like this or other smaller units. I'm trying to target 4-10 units. Would a MF property with positive cash flow on purchase and to make even more cash flow (by increasing revenue and lowering expenses)?  

I appreciate any advice/help! 

Thank you,

Nick

Quote from @Adam Bartling:

So have they given you the last 3-5 maintenance reports and cost?

What are the upcoming 5 years of maintenance? 

Is the property below the value for the area?  Does your clientele have the ability to pay more?  What are you providing for them to pay more?

Can you even submeter the water?  Is it worth the effort?  I managed a 19 building property all 1 bill, did not make sense to divide the bill.

@Adam Bartling Thank you for your questions and analysis.  

They have not given maintenance reports. For cost, that's a good question and no they have not provided maintenance cost. I'm using a flat 8% for maintenance and 8% for capex reserves and 5% for vacancies.  

For rent, the BP rental calculator shows 1395 which I think is way off. Zillow shows a range between 720-1100.  

I don't know about the water submetering. That's a great question too. Very big assumption there. For your building, did you charge extra for water? Such as list rents at one price and say water is $x/month (is that even allowed?) 

Thank you! 

I ran the numbers on this property. Would like to get more feedback on this if my math looks right. 

8 unit property with 2 bedrooms in each unit. All units are below market rent at 700. So there is value add to raise rents by $200 a door.  That's $1600 more per month however would not be immediate as it would have to happen at lease ends and might have to deal with vacancies. 

Another value add is to shift the water responsibility to the tenant's.  This currently sits at $657/month for water/sewer/garbage. I'm not sure how much garbage would be monthly if that was split out.  

Here is the analysis on purchase: 

https://www.biggerpockets.com/...

Here is after rents are raised and water is sub-metered for each unit (took just 300/month off water bill). Cash flow is then $744 which is almost $100/door.  

https://www.biggerpockets.com/...

Would this be worth it?  I would appreciate any advice!  

Thank you,

Nick

Excellent information all, thank you!