Buying into a Partnership - Posted by Jim

Posted by Dons on July 31, 2005 at 07:52:11:

“Current value is estimated at $149,000”

By whom and by what method? How do you know that? Have you run comps? What if it really is only worth $130,000?

Buying into a Partnership - Posted by Jim

Posted by Jim on July 30, 2005 at 18:35:48:

I hope somebody who has had a similar experience can help me with this situation. I am considering buying into a deal where the present owner would split everything 50/50 with me. He needs some quick cash and this is a way for him to get the cash without selling or refinancing. Here’s the deal: He paid $116,000 for a house about two years ago, paying $21,000 down with a $95,000 mortgage for the remainder. He has also paid out of pocket another $19,000 on improvements to the property. Current value is estimated at $149,000. I am considering offering him half of his $40,000 total cash outlay, a sum of $20,000. With my $20,000 cash buy-in, I would be in as a 50/50 partner with him, responsible for half the debt and benefiting from half the positive cashflow and half the profit when we sell. He is renting rooms out to airline pilots and currently has a positive cash flow of $400 per month. (I am 1 of 7 pilots renting from him to live in this house. We all have permanent residences elsewhere and live in this house while working.) Once he and I agree in principle to details, we will have an attorney write up a partnership agreement and quite likely will form an LLP or LLC for tax advangtages to us both. The mortgage will stay in his name, and my name will join his on the deed. Does this deal make sense? Is there a better or more appropriate way to do it?

Re: Buying into a Partnership - Posted by Phila-PM

Posted by Phila-PM on August 01, 2005 at 15:10:40:

I wouldn’t do this deal. There is no equity in the property, and its a lot of money to invest for only $200 of percieved cash flow. Why does he need quick cash? There is not enough equity in this deal for you get all your money back out once you sell.


Get some professional help - Posted by John Merchant

Posted by John Merchant on August 01, 2005 at 09:03:51:

Just as you should do when considering entering into any other P’ship, please talk to a business lawyer and have a well-thought-through p’ship agreement done for you. Without this a new partner and his money might be very soon separated.

And remember that although lawyers love the “oral, between friends” partnership, when (not if) they go bad, as these things generate lots of legal fees, the partners themselves rarely benefit from them.

Re: Buying into a Partnership - Posted by Dave

Posted by Dave on July 31, 2005 at 15:55:22:

If you have the cash to spare, do it.

My numbers.

For $20k outlay, you are earning 12% ($2,400/ yr.) If you consider you’ll now pay less rent (for your 1/7th portion), you’ll probably be over 15%. Even after taxes this is a decent long term investment.

You’ll also get a bit of free equity.

For an investor, this would not be a very good deal. But the fact that you are spending time there (and paying rent), it may be very well worth it.

I think it comes down to wheter or not you have $20k sitting somewhere to invest. Also, of course comps have to work and you must make sure he really is getting $400 net…

Re: Buying into a Partnership - Posted by Sailor

Posted by Sailor on July 30, 2005 at 19:38:30:

If the owner has 135k invested in this house valued @ only 149k & it w/cost you 6% of 149k ($8940) + closing costs to sell it, I don’t see how you can have profit to split. What w/you do if he walks away once he has your 20k? What are the morgage terms? What would the house bring on a quick sale? Would you have a lien on the property? Don’t have many facts here, but it sounds like a skinny, possibly very risky deal–