All Forum Posts by: Sean Tracey

Hi, 

I'm looking to do some brainstorming for how to create successful partnerships wherein one person is the "boots on the ground" and the other works "remotely". The main goal is to get a better understanding of how to divvy up responsibilities while maintaining a 50% partner structure. My particular focus is buy and hold rental properties, but I'm sure we could all stand to benefit from learning about how 50% partners engaged in other areas of REI handle the question of, "Who does what, and how do we assign value to what we're doing, so we can both feel comfortable in our abilities to judge how close we are to an equitable arrangement?".

My immediate thought is that the boots on the ground investor could easily justify a higher percentage in returns or a lower amount of capital invested based on the work required of them. They're in the area, can scope out properties in person, face to face with people, they may very well be the people maintaining the property. PMs typically charge 10% or more once fees are factored in. Tack on some of the other responsibilities, and they might as well be running a turnkey for you. 

With that being said, what kind of responsibilities could a remote partner take on in order to make this a more equitable business relationship? Just how many responsibilities can be taken care of by a phone call, email or other means that don't require a physical presence. Dawn Anastasi and Mehran Kamari mentioned their partnership during both their podcasts, but there wasn't much of a chance to expound on the specifics as far as responsibilities go. I'd be interested to hear your thoughts. 

Thanks @Jacob Pereira. I'm already watching my initial plans evolve just within this thread, and it's been pretty fun and exciting. I'm hoping that 20-30k will be sufficient to get the ball rolling. I've seen many people generate good cash flow off of a 100k property, so it's what I feel is the smartest move for me. It's analogous to community college vs. an ivy league school: the cost of admission might only be 20-30k but I can still learn a lot, and this will primarily be an educational experience for me. If I feel confident moving forward, I may be willing to put more towards REI.

I've thought about health care recently as well, especially considering the abysmal state it's in here in the U.S. While some may find it morally questionable for high net worth individuals, the ACA allows for some heavily subsidized health care for those that show low annual income, even if it's done by being very tax efficient. Whether or not we ever get to take advantage of that, I'm trying to learn to live a healthy lifestyle now in order to prevent health problems later on in life. That's probably the best way to save money on health care costs. 

 Thanks again, Mike. I'm a die hard Boglehead when it comes down to it. I don't see much of a point for me to get fancy with my stock investments. I also don't prioritize growth over dividends or vice versa. With a total market fund I get all that thrown into the mix and am willing to take what the overall market is willing to give me. While it's possible to target higher gains, it's not very likely that I'll achieve them especially over the long term. Where I'm increasingly willing to entertain the idea of increased gains is the RE side of the coin. I like the idea of being able to leverage and add value to a property in order to generate superior returns. Each property can be run like a mini-corporation, and as its "CEO" I have an actual hand in the profits it will/will not generate. 

@Josh Hooper great stuff. I really appreciate you taking the time to share that info. I'm moving closer and closer towards feeling comfortable taking action due to comments like yours, and many others from the rest of the community. I'll check out some of those books you mentioned. I'm itching to read a few books due to the structure and way the information is presented. The forums are great because of all the various info, but sometimes it's good to see things laid out in a more detailed, chronological sense as far as processes go. Thanks again. 

@John D. what conditions would trigger a margin call for you? Good luck with whatever project you decide to move forward with in the next 6 months. In some sense, I am challenging myself for more than a 6% return. I can see that as I've delved deeper into researching RE and the conversations on this forum. On the other hand, like I've mentioned previously, I don't require much money to be happy. I would be quite content to end up with that return and live off of the portfolio generating it. 

I'm willing to try my hand at REI, though, to not only diversify and reduce the standard deviation of my portfolio, but also to achieve a few extra percentage points on my overall return. Perhaps I didn't realize this when I first posted, or haven't communicated it well enough, but 6% is my expected return for my stock index funds. Since I realize that REI requires more work, I'm definitely going to be shooting for a number that is more suitable relative to the work required. 10% cash-on-cash return not including inflation level appreciation and tax benefits seems like a realistic initial goal. If I see that I'm only at 6% return for REI over time, and it's not a totally passive turnkey property, I might as well throw in the towel.

Thank you for the very motivating and encouraging advice. The comments from this thread alone have had a tremendously positive effect on my perspective on REI. I'm glad to see that so many people have been so successful as to want to pour more money into their REI.

I've been listening to podcasts every day. Do you have any book recommendations? I am currently thinking more about the acquisition process i.e. how do I find a property at a good value? I mean right now I'm just perusing Zillow, but I need to get moving on things on a deeper level. Anything you think would help with that and general REI would be appreciated.

 Thanks John. That is a ballsy method. I commend you for being able to handle that. With the current interest rate environment this seems like a great time to start this kind of snowball. I posted a question recently asking if anyone around here was calculating their opportunity cost of their RE cash reserves and someone mentioned taking a line of credit out on your stock portfolio, and it was kind of like an "ah ha" moment. I hate holding cash, so it's great to know you have these kinds of tools to "double-dip" as you said. 

Hi Mike, thanks for your thoughts. I'm 33 now, and due to my income requirements don't feel the need to strive for more than an estimated average of 6% real ROI for my stock investments. It would require a bit of speculation, and I'm not confident in my abilities to be successful doing that.

I'm not a big spender. I don't require a ton of money and naturally live relatively frugally. In all likelihood, I can hit 1 million net worth in 9 and 3/4 years while playing it very safe. 

I am not willing to commit 100% of my capital to REI at this time. Anything can happen in the future, but I'll most likely always max out some type of 401k, IRA if I'm able. I am looking to achieve greater returns with REI, though, and the more I research, the more that idea becomes less far-fetched to me.

Thanks @David Faulkner I appreciate that you're stressing some of the less glamorous aspects of REI. I agree that I need to rethink using the word "passive" when discussing my REI investment goals, at least the initial ones. My goal is to reach a point where my primary involvement in my rental properties is working with a great PM, and that will be passive enough for me.

As far as the 20-30k initial investment is concerned, that's my hard limit as an investor. What I mean by that is while my returns may be less, and of course I'll have to use leverage, no matter how rocky things get I can handle them at that allocation. That's not to say I won't move more into RE as I gain knowledge and experience, and in the process achieve diversification, but emotional stability is my main concern.  

I've never given much thought to counting debt towards the allocation, but technically you're right. I'm confident in my chances of getting tenants to pay that debt. 

Your points about it being a business definitely resonate with me, though. I'll need to be prepared to put in the work to reach my goals. I do enjoy the research side of the job. Let's hope I enjoy the actual legwork. 

Hey @Dawn Brenengen yes, I also like Financial Independence on Reddit. A wealth of great info on there about smart investing and early retirement. I also enjoy the blogs of MadFientist, RootofGood, Jlcollinsnh and Gocurrycracker. The information on these sites is just mindboggling, and very entertaining (especially the blogs). If you want links to some of my favorite articles from them, I can send them via PM.