Partnering and forming a Company

General Real Estate Investing
1

Hi,

I’m very new to this so please be easy on me. I’m very interested in real estate and just purchased my first property with a partner, which we will be renting out.

Moving forward I would like to buy more properties, but would like to limit my risks. What are your thoughts on going in with a large number of partners who would agree to contribute a sum of money until we have enough to put 20% or more down on a property without spreading ourselves thin?

For example, 8 guys would pull 200 a month for a year, creating roughly 20, 000. Which would then be used put down on the property. After that we would continue to invest our money to pay for repairs, pay mortgage before we have a tenant, and to make sure that we have enough cashflow to do what we need to do. From there we would continue to do the same thing, however over time we would begin to gain equity and even cashflow allowing us to buy more.

I know I knew, but it sounds like a plan to me. I wouldn’t get rich quick, but I guess I sacrifice that for the low risk. Any thoughts?

2

Parnetships are frought(sp?) with peril. You would be better off assigning contracts until you get a bankroll to do the deals on your own.

Rob

3

what do you mean by assigning contracts?

4

You can put a house under contract to purchase, then assign the rights to that contract to another buyer for a small fee. This is 100% legal in TX. Check for legality in your state. Also you you should only enter into contracts you a sure you can assign and that you are willing to close yourself if you have not assigned them by the closing date.

Rob

5

Hi -

Nothing will be more educational than forming informal partnerships – and nothing will probably be more dangerous to your career, your finances, and your mental and emotional well-being.

First, there are a myriad of regulations with which to comply – both State and Federal. And you can become personally liable for failing to understand and follow any one of them.

Second, most of the folks you consider to be potential investors aren’t – not in the opinion of the regulators and not in my opinon either. They don’t meet the financial requirements (either for the regs or for your projects) and they don’t have the (much) needed level of sophistication (please don’t confuse this with intelligence).

Third, adding novices to the investment mix is a bit like throwing gasoline on a fire. You won’t want to be anywhere near them when they (or you ) blow up. And believe me, once you take their money, you may as well light the match.

Here’s the point: There are better ways to raise money – use them. Simple as that.

And here’s somthing else you may want to think about – in most cases, more money isn’t the answer; finding more good solid deals is.

Everyone thinks they can put more money to good use while the fact is that few can. Yeah, you can probably use more cash to carve out a better deal (for yourself) and to make some deals a bit more secure (for yourself), but money isn’t going to change a bad deal into a good one (or more likely, a mediocre deal into a good one).

We all believed once – in the idea that our friends (or family) could help us with some (extra?) cash and we could help them invest better. Sadly, it rarely works out that way.

What really happens is that we end up depending on cash flow from people (investors) who don’t really have any risk capital to spare. Yes, they may have a good job and they may even have a bit of money left over after they pay their bills at the end of the month, but that doesn’t qualify them as investors.

They won’t understand when you call and say that you need (even) more money because the roof is leaking, or a disgruntled tenant is suing you, or because the lender called your loan.

You won’t understand when they can’t deliver the money they promised you because their child is sick, or they forgot about an old IRS bill, or they want a new car. At this point, choose an excuse you like.

Get the picture?

Any chain is only as strong as its weakest link. You have to decide whether you are actually strengthening your business (chain) by using other people’s money, time and trust.

It most cases, you aren’t.

Take care,

Eric C

6

I get your point. Thanks for the help. Where woud you, Eric, start. My twin brother and I both have some capital to start with and we both are serious about R.E.I. Shoud we form a llc or a corporation or strictly do it as partners. I think for tax purposes as well as liability, we woud be better off forming a company.

I understand what your saying about partners and how it won’t work out in most cases, but I do trust my brother. We have already done one deal and I know we have each other’s best interest in mind.

7

hey, I’ve just read a nice book by Robert Kyosaki’s advisors – “Real Estate Loopholes”.
they compare all types of companies.
you might want to take a look. Check in your public library.
good luck

8

Thanks, I will.