Case study - rental partnership on 4-plex

[joleran]

Market Value: $245k
Gross Rents: $875/mo/unit x4 =$3500
Taxes and Insurance: $7400 taxes, $2500 insurance
PM: $4000

Putting a lot of conservative numbers into the spreadsheet for maintenance, vacancy, etc. it looks like 17% cash on cash.  If I had managed rentals before, this seems like a home run, but I haven't and I also didn't find the deal in the first place - a friend and potential partner did.  My partner has some limited experience managing rentals (~1yr) and has existing relationships with lawyer/property management/agent and is able to do more of the legwork on this.  They're asking 60/40 split of down payment and all other profit, loss, and/or expenses gets split 50/50 in perpetuity.  This would have the effect of making my cash on cash more like 15% while theirs pops above 20% for the first year.

Does this seem reasonable to get my feet wet?

[CareCPA]

What are the expectations once you invest the down payment? Are you responsible for any aspects of repair/management/tenant placement, etc? Or are you purely down payment money?

[srad]

Assuming the plex is in a good neighborhood and doesn't need a lot of immediate Capx on paper this looks like a good deal.  Partnering up is a great way to get introduced to real estate. 

Couple of things you should think about. 
Who gets final say on any decisions?  From design to repairs to tenant placement there are some big decisions to be made.  Someone is going to want the cheapest light fixture and someone will want one that costs twice as much but looks 10x better. 
How well do you work with these people? 
What options do you have for an exit strategy?  What if 3 years later you and your significant other want to buy a house and need that 20k, can they buy you out?

[joleran]

What are the expectations once you invest the down payment? Are you responsible for any aspects of repair/management/tenant placement, etc? Or are you purely down payment money?

A lot of this is just learning from them and having someone else with some experience to help make decisions, so while I'll be involved, it will be because I want to be or they are temporarily unavailable.  We're going full property management, so other than big problems won't have any direct day-to-day responsibilities.

Couple of things you should think about. 
Who gets final say on any decisions?  From design to repairs to tenant placement there are some big decisions to be made.  Someone is going to want the cheapest light fixture and someone will want one that costs twice as much but looks 10x better. 
How well do you work with these people?
What options do you have for an exit strategy?  What if 3 years later you and your significant other want to buy a house and need that 20k, can they buy you out?

Final say wise, we need to formalize that (and a lot of other stuff like the exit strategy).  This is just at the "make sure we want to make an offer" stage, so we don't have a written agreement yet.  We're both in it for the money, and have been friends for a few years, haven't worked with them directly but he seems to be quite level-headed.

[CareCPA]

I would say make sure your assumptions are spot-on as to repairs, capex, and reasonable vacancy (depending on what type of neighborhood it is). Verify any deferred maintenance or codes issues. If your numbers are accurate, I would say a no-brainer for not having to do any work and for getting to learn the ropes.

[Felicity]

It definitely seems to make sense on paper. The biggest risk would be in a partnership (and by extension, friendship) gone sour. If you decide to go ahead with this, definitely formalize all the numbers and expectations, so there's no chance of misinterpretation in the future.

Side note: are there any landlording / real estate investing meetups or groups in your area? Might be a good place to get more location-specific feedback and advice going forward. :)