Fair terms for partnering on Du/Tri/Quadplexes

General Real Estate Investing
1

I’m looking at a few “plex” properties. My plan is to partner with someone, having them make the down payment and loan in their name. I’m curious what terms are common in these deals? They’d be using their credit and down payment, I’d be the managing partner. How much equity should I offer them, and what percentage of the cash flow should I offer them?

I was thinking doing something like this.

  1. Every month, the “partnership” would pay them the amount of their loan payment
  2. After debt service and expenses, we’d split the cash flow 50/50
  3. If we ever sell the property, we’d split the equity 50/50

Does that sound fair?

2

This would be an extraordinarily difficult scenario to pull off, at this level of investing.

Frankly, at first blush, this just reeks of unicorn chasing.

I would ask, “Why would anyone be willing to both qualify for, fund, ‘and’ give me control of their deals?”

Honestly, on projects this small, this is so unworkable, and unlikely, you might as well look for magic beans to plant.

You’re more likely to find sellers that will finance you 100%, at a reasonable interest rate; that will push off cash-flow, than there will be finding a partner, who’ll do all the heavy lifting, and then give you a piece of his action.

That all said, once you’re willing to get into a critical mass of cash-flowing real estate, things can change.

For example, I know commercial brokers who’ve agreed to manage a given project for their clients, as a value-added benefit to the transaction, including getting a piece of the action, in lieu of being paid a real estate commission. (10% ownership interest)

However, we’re not talking duplexes and triplexes.

So, I guess what I’m saying is that what you’re proposing, is more likely, if not workable, on a multimillion dollar project.

Meantime, a 10% ownership interest in a million dollar project, is not the same as a 10% ownership interest in a hundred thousand dollar duplex.

One pushes off a meaningful profit, and the other is a high-risk nuisance.

I say ‘high-risk’ because small units are ripe for hiccups and setbacks. The ROI’s can be derailed for years, when losses can only be amortized across just a few units.

Hope that helps.

P.S. You’re effectively proposing a fairly big-league play, on little-league deals.

Why not just look for flexible, motivated sellers, that will give you what you want, and avoid partners …or put together much bigger deals, and offer the terms you’re already asking about?

Just asking.

3

You would be more likely to establish a trust to flip properties and have a partner put up the cash while you find the properties, do the work/management, and re-sell. Then the partner would get back his investment and you and partner would split the profits.

I’ve done this successfully and still do to this day. Not unrealistic. The fact of your asking these questions leads me to think you might not be ready as without the investor having confidence in your knowledge, abilities, and experience, it is highly unlikely anyone would put up money or credit.

Personally, if I put up the money and credit…I’m keeping the whole deal!! You need to bring something to the table as a great equalizer for an investor to put up money and/or credit.

Hope this helps.

Rob