Starting a real estate investment partnership with family...

thefed

thefed

Thinks s/he gets paid by the post
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Oct 29, 2005
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So, as some of you may know, I have bought and rehabbed a few houses which are now cash-flowing nicely. Part of my RE investing inspiration is my 2nd cousin...he's 45-ish,just retired from a major RE development company...has a 750k home, winter home, nice cars, etc

When I was in high school, I used to ask him questions about real estate during family holidays. He always said 'get a few deals under your belt....without me helping...then come talk to me....by then I'll be free with my time and maybe we can work something out'

Well, I'm there...I have a few houses done and they're cashflowing. Now I want to do more, but time and money are limited. I have 2 operating businesses which keep me occupied 50 hrs/week until Nov. or so. I have access to money that could get me one more home + repair costs...but being self employed I will not be able to pull money from that house (mainly due to very tight investment lending restrictions right now). HE (my cousin),has time...he's retired....and definately has the $$. Cash....not financing.


So, he finally noticed I've succeeded, and has opened a dialogue with me regarding a possible partnership. We're still feeling each other out re: goals, intentions, expectations, etc. He giggles when I tell him about $50k houses...and reminds me he'd prefer 30+ unit apartment complexes. Of course HIS goals and my goals are coming from 2 ends of the spectrum...

I know the old addage about friends/family and business...and ive seen it almost go sour on the friends working with me route. But I dont foresee any hard money lenders/partners crawling out of the woodwork for what SHOULD be a very nice buyers market this summer


So what should I do? I want to do some business...and take advantage (lack of a better way to put it) of his cash, financing, real estate expertise, connections, mind, etc... But I dont want to cause a wierd friction with family. I know he's great guy, but we arent close...my mom and him are very close because they grew up together..and he just moved back to the area so we are now seeing each other more often. I can't foresee him screwing me...BUT he's a very clever,cunning,quick witted guy....and that always makes me nervous...family or not.

I guess im afraid of being taken advantage of?? He's a successful real estate investor...i've rehabbed 3 houses in the ghetto. He's flying to florida next month to purchase some land at auctions...and i'll be cutting comeone's grass that week...lol....

he's left it open for discussion...single family,duplex, 4plex,commercial, buy and sell, buy and hold, partnership, incorporate, etc etc....whatever...he just wants solid deals and DOESNT need to do this...he already said he'd be essentially doing it for fun at first because an xxxxx profit we'd make off of a 50k home or from 600/mo rent truely is the $$ he wipes his a$$ with every day....but he says he likes my ambition etc etc, and would like to see if we can create a nice working relationship...hopefully materializing into bigger things

I dont know if there's a point to this post....just putting it out there i guess

any ideas, experiences, advice, input?

thanks
 
I don't know why some people can not work with their family... if they see them as honest...

I have two BILs that I would have not problem investing with or lending money... one former (unfortunately died) BIL that was a good BIL but not honest enough for me to partner up with...

SO, my first question is has he made his money by being honest or taking advantage of everyone... if the later, stay away... if the former, then are YOU trustworthy:confused:

Make sure you spell it out on what you think your 'job' is and his 'job'... if his is just money, then you will need to decide if you putting in a certain number of hours is worth it when he puts in none... if so, then you both can agree and go forward...

Again.. their past matters...
 
Texas Proud said:
I don't know why some people can not work with their family... if they see them as honest...

I have two BILs that I would have not problem investing with or lending money... one former (unfortunately died) BIL that was a good BIL but not honest enough for me to partner up with...

SO, my first question is has he made his money by being honest or taking advantage of everyone... if the later, stay away... if the former, then are YOU trustworthy:confused:

Make sure you spell it out on what you think your 'job' is and his 'job'... if his is just money, then you will need to decide if you putting in a certain number of hours is worth it when he puts in none... if so, then you both can agree and go forward...

Again.. their past matters...
Click to expand...

thats the thing...i dont KNOW. he's a very successfull business man...he was a ceo of a huge commercial RE development company...doing walmarts and shopping malls....so i dont know if i could determine that. to the extent i know him,he's fine....not the black sheep if the family....he buys his mom a car every few years....that shows goodwill...lol....i dont know


i dont DISTRUST him, but I guess the disparity between our investment experiences, financial situations, and goals/intentions frighten me. the only goal I KNOW we each have is making $$$.
 
fed,

This could be a major fork in the road ... stay with the 2 businesses you've started and continue forging ahead. Or team with a major player and leap into projects you're probably decades away from (with out him).

My guess is if you spread youself any thinnner, all will fail. Need to take one path and give it 100%.

What do enjoy more: running 2 small businesses or rental property? That will answer the road to take.
 
Since he's offering to menter/partner with you, I would probably either

A: Ask him specific questions about what you're currently involved with, and leave it at that.

B: Find out if he's interested in financing (partially) a bigger project than you'd otherwise be able to undertake. You could also learn a lot by going in with him.

C: Tag along on some of his projects, to get a look at how he succeeds in RE. You could probably learn some lessons shadowing him.


Usually, money and family don't easily mix. But since he's already been successful and doesn't need the money, I can see where he's coming from. He's looking to share knowledge, while continuing to make money, which is why he waited for you to taste some success on your own. Just make sure you maintain a professional approach, get things in writing, etc, like you would with any business deal.
 
thefed said:
thats the thing...i dont KNOW. he's a very successfull business man...he was a ceo of a huge commercial RE development company...doing walmarts and shopping malls....so i dont know if i could determine that. to the extent i know him,he's fine....not the black sheep if the family....he buys his mom a car every few years....that shows goodwill...lol....i dont know
Click to expand...

This wouldn't happen to be DDR would it? They are a big real estate development company based near you in Cleveland and I've worked with them on the engineering/development side a lot on shopping centers and Walmarts/Targets.
 
FUEGO said:
This wouldn't happen to be DDR would it? They are a big real estate development company based near you in Cleveland and I've worked with them on the engineering/development side a lot on shopping centers and Walmarts/Targets.
Click to expand...



no, not ddr




i dont know why im scared to forge forward here... this seems like a great opportunity that i HAVE to investigate...but i feel apprehensive....although i felt this way before buying my first investment and that turned out okay so far...
 
thefed said:
no, not ddr




i dont know why im scared to forge forward here... this seems like a great opportunity that i HAVE to investigate...but i feel apprehensive....although i felt this way before buying my first investment and that turned out okay so far...
Click to expand...

My question would be... what is the down side? If you took on an apartment etc... how much skin do you have in the game... I mean if it went 'belly up', how much would you lose... if it is a LOT of your portfolio... then I would steer clear...

If HE is putting up most of the money and you are doing most of the leg work... then it is your 'reputation' that is at risk.... not your finances...

And if he is as successful as you say... HE will not get into anything that would be a loser right out the box.... so USE his knowledge and funds to help you get ahead... he might like teaching you some of the tricks of the trade... and watch you blossom...
 
Thefed, I would urge you not to ignore your gut feelings and to err on the side of caution.

From what you are saying in your posts, maybe your gut feelings are telling you that partnering with your second cousin might not be a really great idea.

Just had to contribute my 2 cents.
 
It's been said that the only ship that won't sail is a partnership. I have found this to be very true. I agree with Want2retire that your gut feelings are telling you to avoid this for a good reason. If he wants to do a deal and you agree to work for him for a share of the profits, that's one thing. But to officially partner up legally in the venture has one way to turn out good and 10,000 ways to end badly. JMHO
 
I had a sales manager who did so well that he decided to go into partnership to buy an office building central in a big city. On paper he made a huge profit but the partners did not want to flip and take the tax hit so he ended up looking rich on paper and knowing that maybe his kids would benefit from his investment decision.

Whenever partners are disparate, there is a risk of an unhappy outcome for some of them.
 
My honey and i partnered with a best friend when we were in the buying stages. We had bought a triplex and sold her 1/3. Didn't work out - we were close and doing 95% of the work, when we wanted to spend $ on repairs and improvements we wanted to do so immediately, not when she could make it fit her budget. We bought her share back, and it is a credit to our friendship that we remained friends.
Do your own thing - you're going fast enough.
 
he has time...he's retired
Click to expand...

Seems like we've discussed this attitude before. :)

You certainly seem to have a lot on your plate already, Thefed.
 
thanks guys for the input

i'm still pondering...i'll keep you updated
 
well,we had our first 'meeting' today over drinks and i got a lot answered. we were both able to feel each other out and lay down some guidelines. we're going to try one and see how it goes. he really does seem to understand my position and apprehension...and i understand his. the smallest thing he's invested in personally is a 40k sf. commercial building. mine is a 900 sf home...lol

anyway,the ball is rolling...we shall soon see what happens
 
update: we put things on hold for a bit and are getting ready to jump on something soon. we waited a bit to see the market soften some more and i think now is about right for us. I'm almost done with one line of work, so i'll have time this late fall/winter.

i think we'll be putting in offers within 45 days or so...just finishing up the paperwork and agreement.

i hope this housing market is the ticket for us. while most are sidelined, those with the cash are king. LOTS of bank owned out there for 30-50% of their tax appraisals.
 
wow.things happen fast. i got a call last night from my agent who saw a huge price drop on something ive been eyeballing for 6 months. too good of a price to pass up...even considered doing it on my own it's so cheap. phonecall to my cousin goes liek this

"hey xxxx, i found a deal you might like"

him: "oh yeah, tell me about it"

me" "details of home given"

him: "how much is the tax appraisal,whats the land worth and how much are they asking"

me: "126k tax appraisal, land 25k, 25k asking price."

him: " absolute worst case scenario, how much do we have in it?"

me "50k. i expect about 35k"

him "glad you called with a no-brainer...i cant think to hard right now. im in. make an offer and let me know how it goes"


so we're off! wish me luck
 
Texas Proud said:
My question would be... what is the down side? If you took on an apartment etc... how much skin do you have in the game... I mean if it went 'belly up', how much would you lose... if it is a LOT of your portfolio... then I would steer clear...

If HE is putting up most of the money and you are doing most of the leg work... then it is your 'reputation' that is at risk.... not your finances...

And if he is as successful as you say... HE will not get into anything that would be a loser right out the box.... so USE his knowledge and funds to help you get ahead... he might like teaching you some of the tricks of the trade... and watch you blossom...
Click to expand...


i just saw this and figured i'd address it.... i will have ZERO $$ in this deal - just time.i suspect maybe 100 hrs on a full rehab and maybe only 30 on one like i mentioned in my post earlier today. he would like to 'pay' me though and figure that into our total cost, to the tune of about 7500 on a $50k home assuming about 100 hrs of my time. of course i wont be doing all of the work, he is really pushing for me to learn to hire out some things...he always comes back to a mini-lecture about opportunity cost and the number of hours in a day...
 
Good luck. I tried to talk my FIL into a similar situation. He has the cash and a good amount of knowledge, but no time. I have a good amount of knowledge a little cash and lots of time. He wasn't interested in partnering up and only wanted me as an hourly employee. The talks ended there as unacceptable to both. He hasn't invested in anything and I'm still looking. In this area the market is a bit soft, but not too bad.
 
Well, we put offers in on a few homes this fall and winter but werent overly excited about the margins ($100k tax value, expected 50k into them after rehab)....for one reason or another, we didnt get any of them


Now, there is a glut of CHEEEEAAAP city lot homes in semi-decent neighborhoods....all a bit rough, but some decent enough for me to live in.

When I say cheap, I mean $10k list, $5k rehab needed, tax value of 50-60k. We're going to put some offers in on a few of these cheap ones in the next week or so and go from there....a $10k home seems like a pretty low-risk deal....you cant even buy a half decent car for that. All of these kinds of homes we are seeing will rent for 550-600/month...so again, they are no-brainers. i actually scored one of these 2 years ago and posted about it... $12k purchase, 7k rehab costs...then another 3k for siding to really beautify it the next season...rented consistently since then for 650/mo!

Wish me luck!
 
Hard to imagine homes that cheap. $10k? Several of the homes in my immediate area have a larger annual property tax bill.
 
thefed,

Thanx for keeping us posted. Sounds exciting!

FWIW I purchased half a dozen homes below 20k and another half dozen below 40k (in the 90's) so I know what you doing is "real" ... and your timing could be better (but you'll have to carry them for awhile).

Stay the Course!
 
thefed,

Have you had any headaches when tenants moved out? As in, having to replace the carpet, repaint the walls, repair or replace appliances and fixtures? That was the norm when I was helping my FIL with his "slumlord" properties like this (ie - $20k-30k and they rent for $500-600 a month). He also had 30-50% vacancies in general, with frequent unannounced move outs. Just wondering if things are different in your part of the country.
 
yes, i have to do some repairs...but im handy so the security deposit still ends up covering it all plus some...crossing my fingers though!


vancancy is about 20%, but thats because im very picky when they move out... I try to find the 'right' one instead of 'any' one.
 
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