I have been looking at houses in an area where some serious flipping has been going on. I’m comfortable with the market and know the situation. These houses are being sold cheap and need repairs. You can’t get an appraisal on them. It’s all a cash deal - pay cash and fix it up with cash. With 50k in it they are back on the market for 100k in a few months and sell quickly because they can be financed then.
I have been wanting to get in on this but the amount of cash required has kept me out. I know one other person who is interested in the same thing and has the same problem. I could accept 15-20k worth of risk in something like this buy can’t tie up 50k. So he suggests going in at partners. It seems like a great idea. My only thought is that a third equal partner would be a good idea - to resolve differences.
Has anyone done this? How do you structure it? Did it work?
I have been flipping homes for many years, ever since I figured out I could make money with my construction background.
I have had many partners over the years, some were a one time thing and some I flipped with for a long time, I have a couple of flipping partners that I am doing projects with now!
The biggest things are to talk about all the various parts of the project and the process before you start! What happens if we go over budget? Who will be the primary managing partner? Or would both partners be responsible for parts of the project? Who’s name or names will the property be in? Who will get utilities in there name? How will you determine how to finish the property? (Paint color, carpet color, tile color, trim, hardwood, cabinet color & type, countertops, vanities, tubs and tub surrounds, exterior colors and trim, etc) Who keeps track of the books? How is money dispersed? Who controls the payments? Etc.
If you find like minded investors with the same goals and desires who have the same basic understanding of the process and responsibilities involved then you can be successful!
Put everything into a partnership agreement, write out the responsibilities and who will be responsible for each item, work the project and process out on paper and the scope of work! Also create a schedule and expectaction for partners to perform labor in the agreement!
A third partner could be fine but one of the three of you will always be looking to resolve issues with the other two, however if your group really understands what you want to accomplish there should be very few real problems?
Gold River brings up a lot of great points. There’s a lot to account for. I personally would advise Not bringing in a 3rd party. A 3rd party is just one more person that has to agree.
I would advise you to find a money person to provide the funds and you provide all operational activities to do with the property itself. And then split the profit 50/50.
Money’s not the problem for either of us. Each of us could front half the money in cash, and do repairs. I’m kind of pressed for time as it is, so not looking for more work anyway.
I guess I need to sit down and talk to him some more. I don’t know him that well yet, but when we have talked we are very much on the same page with stuff.
You may need to look at what you are doing. You say that you are short on time but you want do real estate. Flipping is a job and is taxes as so. You already have a job and don’t want another. If you look at what goes into flipping as Gold River said above it is time consuming. It is rewarding because the end you get a big check. I am like you I have a job and don’t want to spend a lot of time doing this what I want is streams of income. That is why it is important to understand the difference between being a real estate investing and working in real estate.
The flipper works in real estate. If you buy a house that is worth $100k for $50k. You put $20k into it and sell it for $100k you just made after costs about $15k. That $15k is taxes as ordinary income but is still $10k or so. If you had bought that same house and rented it out for $1000/month wit ha cost structure of around $600/monmth you would have made $300/month. That $15k seems like a lot more than that $300/month. But how long does $15k last…not long these days. But that house that rents and gives you $300/month tax free keeps on giving. If you bought 15 of them you now get $4,500/month every month without doing anything other than cashing checks and paying mortgages. This can pay your personal mortgage and car note. In some states this will pay all your living expenses and make your paycheck all extra money. That is not working that is investing. By the way if you had flipped those 15 houses you would have made $225k. That $225k is still in those houses that you can get out when you sell them. So instead of making $225k you actually made that plus the $54k which is the rent for the year. You only realized cash of $54k which since it is tax free is like a job making $85k/year.