How to Start Real Estate Investing with a Partner

TL;DR

You can start real estate investing with a partner by contributing experience and day-to-day management while someone else supplies the money. The investor featured here gained experience managing 40 units, found a financial partner, formed an LLC, and bought a duplex with cash. Their arrangement gave the partner equity, cash flow, and mortgage interest while the investor handled management. Read on for the partnership structures, pitch, and role divisions that made the deals work.

Transcript

so how did you I mean how did you get your very first deal why did you decide real estate and then what your first investment look like so when I graduated college I got a counting job at a CPA firm someone part-time just to manage some apartment complexes so I agreed to do it and it was a little tiny room with boxes of papers and a drawer full of ... Read More

Key Insights

• Real estate investing can begin with a job in property management to gain experience.
• Partnering with someone who has money but lacks experience can enable real estate investments.
• Presenting a well-structured proposal with clear potential returns can attract investment partners.
• Forming an LLC and having life insurance policies can protect both partners in an investment.
• Different partnership models exist, such as splitting work and profits or having a silent money partner.
• It's important to address potential partners' fears by ensuring their investment is secure.
• Legal agreements, like operating agreements, are essential to formalize partnership terms.
• Utilizing local attorneys for drafting agreements can be cost-effective and beneficial.

Questions & Answers

Q: How do you start real estate investing with a partner?

Bring a useful contribution, such as property-management experience, deal knowledge, or the ability to handle daily operations, and find someone who has money but lacks that experience. The investor explained the deal, showed the potential equity, cash flow, and mortgage interest, and then formed an LLC with the partner to buy their first property.

Q: How did the investor get the experience needed for a first deal?

She left an accounting job and took a part-time position managing apartment complexes. She began with 40 units, later managed 80 units, and used about a year of day-to-day experience to show that she could handle a duplex.

Q: Who became the investor’s first real estate partner?

Her first partner was the son of the person who hired her to manage apartment complexes. She pointed to what his father was doing, broke down the proposed deal, and explained how the partnership could work.

Q: How was the first partnership deal structured?

The partners formed an LLC, and the financial partner supplied the cash to purchase the first property. He held the mortgage while she managed everything, allowing him to participate without handling daily operations.

Q: How did the partners use their first property to help buy another one?

A few months after the first purchase, they found another apartment they wanted to buy. They placed a bank mortgage on the first property, returned the partner’s cash, and had him hold the mortgage on the second property.

Q: What returns did the pitch offer the financial partner?

The pitch showed that the partner could build equity in the building, receive some cash flow, and earn interest on the mortgage. The investor also made the arrangement passive for him by taking responsibility for management.

Q: What partnership models are described for real estate investing?

One model uses a money partner who supplies the capital and performs no operational work while the other partner manages everything. Another model is an active 50/50 partnership in which both people contribute money, share the mortgage, divide responsibilities, and split the results.

Q: How can two active real estate partners divide their responsibilities?

In the second partnership described, both partners handled the investment on a 50/50 basis and were both on the mortgage after refinancing. One partner managed maintenance, while the other handled leasing and tenant relations.

Summary & Key Takeaways

• Partnering in real estate can be a strategic way to start investing without initial capital. By leveraging skills and experience, you can attract partners who provide the financial backing needed. Clear communication and offering a structured plan with potential returns are vital in securing a partnership.

• Creating legal structures, such as an LLC, and having life insurance policies are important steps in protecting both parties in a real estate partnership. These measures ensure that investments are secure and that there is a clear plan in place in case of unforeseen circumstances.

• Different partnership models offer flexibility in real estate investing, from silent partners who provide funds to active partnerships where roles and profits are shared. Understanding and choosing the right model can enhance the success of your investment ventures.