Posted by Brent_IL on October 04, 2003 at 15:17:20:
One advantage of using a money partner is that the right kind of partner will accept much higher LTV ratios than a HML will accept.
new investor with equity “rich” backer - Posted by ron
Posted by ron on October 04, 2003 at 03:44:05:
I have a lady who wants to do some deals with me. She has two properties worth $250K and $200K respectively. The $250 is just $15K short of being paid off. It has an assum/non qual loan on it. The $200K house is paid for.
Here are my questions:
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What is the best way to pull out money from these properties and invest?
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She is willing to split profits 50/50 and that seems fair to me. Is it?
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Anything else I should know? If so…where can I get the info?
Please…I am only looking for responses from experienced and active investors. The few other posts I have placed on here have been answered by what seem to be newbies or people giving philosophical “hang in there and use good judgement” answers. Those don’t help! Please answer if you have useable info. Thanks!
Re: new investor - Posted by tom
Posted by tom on October 05, 2003 at 12:52:56:
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depends on your exit strategy and how much interest rate risk you want. if you are short term i would suggest a HELOC. if you are mixed you could do one big new 1st and a HELOC on the second home. or all long term, get two new mortgages on her properties. i find it easier to sell these products separately rather than a blanket mortgage.
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depends on what your bring to the table. you don’t mention that, just that she is putting up the $$. you don’t mention the type, quality, neighborhood, location, condition, market forces for your investment. there is much to think about in this area.
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get a book out (NOLO) on partnerships. go over all the stuff with your parnter. get a lawyer, get it written down.
HML is another way to structure the relationship. and cleaner legally. more risk for you, less unknowns for your $$ partner. if you manage those risks well, more profit for you, if you don’t you lose, maybe more than your property.
I have financed deals for people along the bond net lease idea with option to purchase. that way as HML i am already on title, no foreclosing. this way i can offer a better rate, and if the deal takes more than a yr, i can take my gain as capital instead of ordinary. also i get to take depreciation.
Re: new investor with equity - Posted by diond
Posted by diond on October 04, 2003 at 15:02:37:
If this lady truly wants to do deals with you, you need to lock her down immediately. Form somesort of legal entity with the 2 of you being the members for the purpose if investing in RE. Put together a biz plan and go to the bank. She obviously has good credit and a substantial net worth. A well written biz plan with the appropriate safeguards for the bank will allow you to tap into her equity without having to leverage her properties at all. You have to split the cash out with her, but so what. you arfe using other peoples money to do a deal you couldnt do on your own.
Re: new investor with equity - Posted by Del-Ohio
Posted by Del-Ohio on October 04, 2003 at 09:10:58:
Couple options on getting the money out.
- Home Equity Line of Credit
- Deal with a local bank to finance all your properties, have the bank take a second mortgage on “her” property for the downpayment.
Saves you from making interest payments on the down payment money. This is how we do our deals.
Del-Ohio
Re: new investor with equity - Posted by Del-Ohio
Posted by Del-Ohio on October 04, 2003 at 09:05:52:
It a little difficult to give you a good answer without having more background.
It depends a lot on your credit, your experience, and what if anything (experience you need)the partner provides to you besides the money.
My personal experience.
My first deal I partnered with a money partner 50/50. I did this because I had bad credit and nobody would loan me the money. The profit to me in 45 days was 3,000 profit and a four year old 750 Yamaha motorcycle.
I am currently in a “partnership” with a money equity partner that has allowed us to borrow money at 4.5% and use equity in properties as our downpayments. This has allowed me to grow umpteen times faster then I would have been able to on my own. Since Janurary we have purchased 18 properties, well three havent closed yet.
Our Corperation is also in partnership with three other individuals, “rehabbers” who needed money partners.
How we structure these deals depends on the level of experience and confidence we have with our partners.
We basically set it up where we get the first 10,000 profit on a rehab our partner gets the next 10,000 and then we split 50/50. All our partners are in their first project with us. I would expect if these pan out well we will reduce our percentage. We provide more than money for our partners, we also provide them with experience on doing profitable deals, access to good contractors in a timely manner etc etc.
If you are planning on doing one or two rehabs a year, or investing in a couple keepers and you can get a loan, by all means borrow the money instead of partnering at 50%.
Also know that partnerships generally fail. I hjave been in numerous ones and they are rife with problems and conflict. Both parties KNOW the value of their contribution is greater then the other.
Plan in advance an exit strategy, and write it up.
If we knew a little more about you, and gour goals and aspirations we could provide more directed advice.
My Viewpoints
P.S. $500,000 equity will make downpayments on 2.5 - 5 million in property purchases @ 10% - 20% down. If you get a little creative and have owners carry some of the down payment, you can levelage a heck of a lot of property. Just make sure the deals are VERY good.
The question to ask your self, can you do better with her money or better without. You can always dissolve the partnership in a couple years if you no longer need her money. There is nothing that says you have to keep this up pernenantly.
same - Posted by tony
Posted by tony on October 04, 2003 at 05:59:59:
Ron,
I am a mortgage broker (i lend in 44 states) and i am also an investor. My question to you; How much experience do you have in buying properties?
Re: same - Posted by Dan
Posted by Dan on October 04, 2003 at 11:55:29:
Tony,
Do you do any lending in WI? If so, could you email me so I discuss further what you provide and what I am looking for.
Thanks/Dan
dlaabs26@msn.com
Re: money partner is expensive - Posted by Rich Hyams
Posted by Rich Hyams on October 04, 2003 at 07:38:31:
I closed my first deal yesterday, finally.
I was at a client’s business two weeks ago, a long time client, a builder. I presenty own a computer/service/supply company. He saw the signs on my truck(I BUY HOUSES) and said, “I’ll buy as many houses as you can find”. We discussed my current deal and he offered to partner with me on anything I do. I told hime that I don’t need a money partner, hard money is going to cost me 3 points and 15%. if I hold it six months(I am expecting four) it is going to cost me 13.5k, I am expecting to make a minimum of 40k, hoping for 50k and dream of 65k. A money partner would get half.
Hard money is MUCH cheaper.
Especially since this guy then said, “I have two mm in cash and am looking to put it into mortgages, I will give you 12% and two points”
Now a six month(pessimistically) hold is going to cost me 8% or 10k.
While I am not that experienced, I believe hard money is much cheaper than a money partner.
Re: money partner is expensive - Posted by john davis
Posted by john davis on October 04, 2003 at 14:46:34:
I been in re 25 years and you are right.