Author Topic: PROS & CONS: Business partners for purchasing income property  (Read 313 times)

Tonyahu

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PROS & CONS: Business partners for purchasing income property
« on: October 12, 2017, 12:38:16 PM »
Hey all,

Late next year a few friends and I (3-4 including myself) are going to need to move a portion of our net worth out of a higher risk asset (crypto-currencies) and into real property.

What is your opinions on purchasing a property with business partners?

- This would be done in cash and definitely with a good lawyer to set up the proper frame work.
- Due to me being the one doing most of the leg work, I would have buyout rights.

We live in Los Angeles, CA so real estate is very expensive. We each will take out $50k-$80K and get a property that is worth roughly $250k-$350k. After expenses, budgeting for repairs, vacancy..etc, we would just be pocketing the cash flow.

Open to any and all input!

Thanks.
« Last Edit: October 12, 2017, 12:46:04 PM by Tonyahu »

MetalCap

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Re: PROS & CONS: Business partners for purchasing income property
« Reply #1 on: October 12, 2017, 02:34:20 PM »
Its best to get a real estate lawyer for something like what you're discussing.

They'll set up the LLC, and the Operating agreement which lays out everything related to the business (shares, buyout, decisions, etc)

I suggest going thru BiggerPockets before diving in to make sure you're educated on real estate investing before laying down cash.  You don't need 150k in cash (3x50k) to purchase a 350k property.  If you all have that much cash 50-80k you may want to look into multi family as its more stable with better leverage.

Take your time and read up.  But real estate has been fun for me regardless of ups and downs.

Tonyahu

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Re: PROS & CONS: Business partners for purchasing income property
« Reply #2 on: October 12, 2017, 04:31:09 PM »
Its best to get a real estate lawyer for something like what you're discussing.

They'll set up the LLC, and the Operating agreement which lays out everything related to the business (shares, buyout, decisions, etc)

I suggest going thru BiggerPockets before diving in to make sure you're educated on real estate investing before laying down cash.  You don't need 150k in cash (3x50k) to purchase a 350k property.  If you all have that much cash 50-80k you may want to look into multi family as its more stable with better leverage.

Take your time and read up.  But real estate has been fun for me regardless of ups and downs.

Yup, I mentioned I would get a lawyer in my post.

I am more looking for opinions on the pros and cons for those who have done it.
I am not looking for advice on how to do something like this.

But yeah, I am doing my learning now over the next 6 months. Active on BiggerPockets, about to read "Building Wealth one house at a time", going to start digesting some podcasts...etc. Thanks for the input!

Neo

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Re: PROS & CONS: Business partners for purchasing income property
« Reply #3 on: October 12, 2017, 08:14:43 PM »
I own properties with a partner who has been one of my best friends since grade school. We are 33 now. We trust each other and are both intelligent and hard workers. Our skill sets are different but complementary. I love having someone to split the work, risk and costs with. Of course at times I wish the profit was all mine but the split is worth it. We also both have good day jobs so we arent cash strapped or over leveraged. We keep all the profits in the business account for future purchases and repairs and dont take monthly payouts. We decided on that plan before we ever bought our first property. There may be rough patches down the road; who knows what life will bring. But the important thing is we know each other super well and know what kind of man the other is. That factor makes it extremely easy to feel 100% comfortable in the partnership. If you have the same relationship with your partners I say go for it. Just have a plan going in, get a lawyer and create a partnership agreement you can all live with, with exit plans documented for when the day comes. Good luck!

GrayGhost

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Re: PROS & CONS: Business partners for purchasing income property
« Reply #4 on: October 12, 2017, 08:53:44 PM »
One data point to consider is that California is one of the most left-wing states in the US. We own a few properties in NJ, also a very left-wing state, and let me tell you, it makes a difference in the time/costs of evicting people, in the troubles they can make for you, et cetera.

I'm not saying not to do it by any means, or that you can't make a killing (we're doing very well) but if possible, I would find an investor in CA and get some mentorship from them. They'll have stories and an understanding of the situation on the ground that may be hard to find elsewhere.
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calimom

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Re: PROS & CONS: Business partners for purchasing income property
« Reply #5 on: October 13, 2017, 12:01:04 AM »
I've co-owned a duplex with my cousin and her husband for the past 8 years. It's in the town we live in and was purchased with cash during the real estate slump.From the start we knew one unit needed some minor upgrades, and those were tackled right away, along with some landscaping. There have been a couple of challenging tenants and a tricky couple of repairs that we got through. We have an LLC. At the first part of each calendar year (usually New Year's Day) we have a quick meeting to discuss continuing on with this investment, the caveat being if one party wants out, the other has the right to buyout, or the property should be listed for sale. We've obviously elected to continue, and have rehabbed and flipped two other properties. There's been discussion about a multifamily property but we never fully go through, so it seems the duplex is pretty much it for buy-and-hold for us. Which is fine, it's decent cash flow, has increased in value and is a solid investment. We went into it knowing that our relationship was more important than money, and we've kept that though first and foremost. Wishing you the best of luck!