Author Topic: new to realestate (partnership)  (Read 752 times)

BORN SAVER

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new to realestate (partnership)
« on: July 16, 2019, 07:07:34 PM »
hey guys I am very new and interested to realest and haven't owned rental property yet. my self, coworker and some of his acquaintances for about 4-6 people would like to go in on a rental property together. we are still brain storming on what kind of property and where we would like to do it at. I was looking for some advise. my main concern is working with other people. ive never done anything like this and am concerned about legal stuff.

1. is this a good idea to work with partners?

2.what would be the best way for us to do this together? what  kind of bussness structure?

3. how should i structre what ever contract we would use or where would i get one from?

4. what should i watch out for? what should i protect my self from?


5. can busness partners debt come back and bite me?

6. were going to have a conversation sometime soon and start get the ball rolling. what would be some good questions to ask.



BORN SAVER

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Re: new to realestate (partnership)
« Reply #1 on: July 16, 2019, 07:11:16 PM »
also a lot of these guys want to take out loans. how does that work since there are multiple people?

SeattleCPA

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Re: new to realestate (partnership)
« Reply #2 on: July 17, 2019, 07:58:04 AM »
I think real estate investments, direct ones, make a lot of sense.

E.g., here's my last blog post: A Dozen Reasons for Direct Real Estate Investment. (TLDR  summary: As compared to stock index funds held in tax-advantaged accounts like IRAs, direct real estate investment delivers some really unique tax and portfolio benefits....)

But the approach you're considering seems problematic... partners? limited resources? Scary...

Another idea to gnaw on: What about using REITs to get your real estate exposure?

Fishindude

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Re: new to realestate (partnership)
« Reply #3 on: July 17, 2019, 03:03:57 PM »
I've done several real estate deals with partners but we were all well healed and nobody was borrowing just to get in on the deal, we used cash to get in, then the partnership took on a mortgage. 
 
If you are using cash and another partner is borrowing, they could be come financially stressed over something totally unrelated to your real estate deal and have to bail out leaving you holding the bag.   You definitely need provisions in the deal to address this so it hurts the one that gets out early a lot more than it hurts they guy that has to buy them out.    Any good attorney can set up a partnership agreement.

Choose your partners wisely.   You don't want to go down that road if it's avoidable.
Do it solo or stick with one or two individuals you know well and trust.

Papa bear

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Re: new to realestate (partnership)
« Reply #4 on: July 17, 2019, 06:44:03 PM »
4-6 people is a LOT for this, unless you are buying some big commercial units.  If you are going residential, stick with 2-3 people, max.  And you better be damn sure you know them and get along with them very well. 

If you do go this route, and you are buying an apartment building or a strip mall or something, then 4-6 seems more reasonable.   Definitely set up an LLC and get defined functions for each member (partner) in the LLC.  Get this all clearly written so there is no confusion going forward.

If you identify a unit, post some numbers!  We are all good as a group about evaluating property.


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BORN SAVER

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Re: new to realestate (partnership)
« Reply #5 on: July 17, 2019, 08:16:01 PM »
ya that's what I was worried about if they would leverage them selves to much because ive always wanted to buy my first property with just cash and watch the money pile up. we would only have done something small like 1-4 units most likely. it sounds like you all agree there would be to many hands in the cookie jar. But thanks for kind of confirming my thoughts. ill just keep stacking the cash and will hold out and go it alone

thanks guys.

Papa bear

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Re: new to realestate (partnership)
« Reply #6 on: July 17, 2019, 08:57:48 PM »
I have some concerns that the idea of real estate investing is paying cash and watching the money pile up.  I know you’re speaking tongue in cheek, but the vast majority of people will tell you that one of the best reasons real estate investing works is precisely because of leverage. Even with the cash offer people, they typically cash out refi the property so they can go buy something new.

Rarely do all cash deals make it rain in the cash.  You can maybe get 6-10% return on your money, and still have the headaches of being a landlord.  Leveraging your money gets you into the 20%+ cash on cash return.

I would suggest you go into something on your own to dip in.


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A Fella from Stella

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Re: new to realestate (partnership)
« Reply #7 on: July 30, 2019, 12:27:36 PM »
It can work if you form a formal investment club. Not saying it's the best, but here's an idea:

Every April (tax refund time) each of you puts in $3,000 in cash.

Now you have $18,000. Start looking at properties, and have the LLC owned by all of you buy it. Purchases might have to wait until year 2 or 3; who knows? After 20 years your portfolio can start buying properties on it's own.

PROBLEMS: Someone is going to need money, and they are going to want it from the partnership. I would personally make it iron-clad that a partner can be bought out by one of the other partners (or an outside party everyone agrees on), but not that it can be sold at will, and not that withdrawals can be made. Someone is going to not want to wait a decade for potential dividends to pay off. Also, this approach is probably the slowest, though maybe the most doable, way to do this.

Villanelle

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Re: new to realestate (partnership)
« Reply #8 on: July 30, 2019, 12:34:13 PM »
My concerns with partners is with the details.  What if one wants to sell?  How do you value their portion for a buy out?  Under what terms can one person force a sale? What about upgrades and updates--how do you decide?  Majority rules, even if that means everyone gets a huge bill?  Or one person veto, even if that means they can control something that everyone else sees as the worse path forward?  And are you okay with either getting that huge bill for something you are against?  Or with someone else being able to veto upgrades, or even just updates, that you feel are valuable or perhaps even necessary to prevent future expenses?  What if some partners want to accept a lower rent to fill a vacancy and others want to hold out for more?

Things like that are where it can get very sticky, very fast.  And the more partners, the more complicated.

Every issue faced by a single landlord becomes a potential minefield when you have multiple parties involved.  And if all or most of you are novice landlords, you can expect the ride to be even bumpier.


A Fella from Stella

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Re: new to realestate (partnership)
« Reply #9 on: July 30, 2019, 12:36:13 PM »
My concerns with partners is with the details.  What if one wants to sell? 

Not if, when. Someone will need money, or just want money.

This kind of operation, done by normal people making mistakes as they go, will likely acquire something like 10 properties over 10+ years, and there won't be profits to spread around. The money is for retirement, IMO.

A Fella from Stella

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Re: new to realestate (partnership)
« Reply #10 on: August 15, 2019, 09:33:47 AM »
Was there a final conclusion on this?