Posted by John Corey on May 13, 2006 at 07:03:36:
Partners can be fine when handled correctly. How you handle it correctly is the question.
Two observations for those still reading this thread.
-
Partners where there is a high degree of shared control is difficult at best. You are agreeing to work as one on all the fine details. With any refurbishment there are so many little decision to make. It is almost impossible to cover everything in a partnership agreement.
-
People partner on deals when they lack the funds or the skills to take on the project alone. If a person needs the funding consider hard money. Assuming a 50/50 profit split AND that the project has decent profits then hard money will cost about 1/2 what a partner will take down. Many people do not do the math or they emotionally react rather than realize that a partner is the expensive choice.
-
If a partner is less expensive than hard money then many times the deal is lacking in profits.
A hard money lender is a silent partner who does not care about the paint color, the texture, or if you want to sell FSBO. Just send in the payments and the HML will stay out of your hair.
Partnerships are difficult and there is a lot of joint legal liability. Make sure you have your eyes open before starting. Make sure you have done the math and there is not a less expensive solution.
The best reason to take on a partner is when you need specific skills or knowledge that the partner can bring to the table. In that case get the roles and responsibilities sorted and the legal liabilities sorted before starting.
John Corey
How to structure paperwork for a partner - Posted by bmeesh
Posted by bmeesh on May 05, 2006 at 07:25:43:
I found a property, I will handle the payments and part of the down payment and my partner/friend will handle part of the downpayment. I can do one of 2 things I suppose…offer to pay my partner on the use of their money and pay it off in a certain amount of time, just like hard money…or offer her a tiny equity stake in the property and pay her a percentage when I refinance down the road…how would I word that in a document. My responsibility will be more as there is a renter and taxes etc which will be my deal. What do you think is reasonable for an equity stake…I am thinking the deposit is 10% and she would be putting down 5% of that…I would rather just pay her an interest rate on the use of her money…open to suggestions…thanks
Re: How to structure paperwork for a partner - Posted by Rob
Posted by Rob on May 08, 2006 at 11:23:08:
Be very carefull what you ask for. I took on a partner for a rehab project we aquired last October. Project was only suppose to take 2 months at the longest. Well, guest what, my partner bailed out and I’m just finishing the rehab myself. My partner ran into some financial and legal issues mostly due to her boyfriend who grew up in construction, but refused to do any work except get drunk. I thought my partner was pretty well grounded, after all she has a Ph.D. in chemistry. Anyway, she made a big deal over the smallest thing. For example, there was a piece of loose plaster on a textured wall that we scraped clean. The next day when I returned, the whole room has random sections of the texture removed (a hot mess). She then starts complaining that all of the texture will not come off (Duh). I have many more examples like one hour discussions about splattered paint on windows or a nick in the hardwood floors. To be honest, I was happy she wanted out. I’ve gotten more done on my own in a month than we did together in 4 months. The carrying cost has totally eaten up most of the profit. The house was screwed up so bad that I could not sell it for what we bought it for. I had to spend money just to get to a point where I could get my money back. There is good news however, I will make about $15,000 and it was a lesson that I needed to learn. Always have control and if you do take on a partner, choose them wisely and get a lawyer to draft up the partner agreement.
Good Luck.
Re: How to structure paperwork for a partner - Posted by John Corey
Posted by John Corey on May 05, 2006 at 08:56:04:
Bmeesh,
Do you want a partner? Someone to discuss the paint color with. Someone to co-sign on everything? A partner that if they get divorced can end up putting a cloud over the property while they sort out their life?
Do you want a lender? You sign an agreement to put a lien on the paper and sign a note to pay them a specific return and their money back? No sharing of the decisions. No sharing of the liability?
You could sell someone an option and get the cash up front. No lease, just an option. They if you want to sell later you can cash out their option.
So, I suspect you are not thinking through the different risks and complications of a partner? You can do anything and a good lawyer can write it up. There are some solutions that are better suited to certain situations. If you really are trying to get some cash but do not want a loan showing up then do not agree a loan. If you want to get the cash and a loan is not going to cause a problem (lender in 1st does not mind if you borrow to get the down payment) then using a private party as a lender is generally pretty clean when it comes to contracts, limits on liability, no sharing of decision making/control.
Forget the how for a minute and explain what you are dealing with and why you want to do this deal. The tool box has a number of possible solutions but the right tool is based on the task you want to accomplish.
John Corey