You may want to do a Limited Partnership, wherein you are the
General (managing) Partner, and the money partner is the Limited
(silent) Partner. Your partnership agreement must spell out the
details, including what will happen if one partner wants out. Nolo
Press has an excellent book on this at http://www.nolo.com
However, I would suggest that instead, you find money partners
that are looking for a passive but high return investment, and
make them into hard money lenders. If they are real greedy,
negotiate the loan rate down and give them a percentage of the
net when you sell the project. You do not want to be in a
situation where the other party has control over any aspect of the
project. If that’s what they like to do, let them get their own
project, or sell them your project and move on!
You might want to run a classified ad for investors looking for
high yield, there are lots of people that would be thrilled to own a
Note and 1st Deed of Trust that was returning 5 times the return
they are getting at their bank.
Update on partnership problem - Posted by michaela-ATL
Posted by michaela-ATL on January 19, 2004 at 08:09:00:
Some of you may remember the deal, that I bought in July, where my partner stopped paying my subs and had told my HVAC guy, that he would pay him as soon as I would sign my share of the property over to him (after I had done half the rehab). I had been willing to give in to him, so, that my HVAC guy would get paid. A number of you wrote, that I shouldn’t give in so fast.
Well, My Former Partner drug his feet and 2 weeks later it still hadn’t happened. SO, I talked it over with my HVAC guy and I changed my mind. I sued him for breach of contract. He countersued me for everything, that I don’t own.
In the meantime, he was getting bids from contractors to finish the house and as far as I’ve heard the prices were astronomical.(well, someone, that has never done any kind of rehab, doesn’t want to work as a GC and has to tell contractors, that his previous contractor walked off the job, has a hard time getting super deals ).
He’s now ready to let me buy him out for what he has in it and wash his hands of the deal. YEAH! Most hard money lenders are out of funds, but I have one, that’s expecting a payout in a few weeks and is interested in funding the deal.And the market is starting to pick up as well.
Michaela How can a smart lady like you get yourself into this situation? A hard lesson to learn. Any time I have a partnership now, I have control of the operation. The partner is a hands off silent partner. I hope you learned your lesson? Sometimes we must learn the hard way. (I have learned the hard way too many times, with hard cold cash) It has cost me a small fortune over the years. good luck I always enjoy reading your posts. wpage
Re: Update on partnership problem - Posted by michaela-ATL
Posted by michaela-ATL on January 19, 2004 at 17:57:01:
wpage,the partnership was my last solution. I’m totally not a partnership person. The hardmoney lenders were all either ‘out of money’, didn’t want to invest in +100k houses, didn’t want to do more than 1 rehab (I had the lawsuit one set up with one and wasn’t going to chance that one) or insisted, that I would put my own funds into the deal. I was under time constraint, because the seller was due to get thrown into jail and I HAD to close a particular day. I finally broke down and took a partnership offer by another investor (who’s made his money in mobile homes and had never done any rehab). It was either that or losing the deal.
They always say: find the deal and the money will come." Yeah, right. I found it’s not so. I think Atlanta may be more difficult, due to it being the ‘mortgage capitol’ of the U.s. The HML here have some very tight criteria and only a few will veer of their guidelines.
Well, we all have 20/20 hindsight, but to be honest, knowing, that I can now buy him out still puts me in a better situation, than having lost the deal completely due to lack of financing.
Re: Pay him off over a few years. - NTXT - Posted by michaela-ATL
Posted by michaela-ATL on January 19, 2004 at 17:37:57:
Brent,
even though he['s tried to screw me, I won’t try to get back at him. I don’t want that karma on me. And I don’t want him to have any further involvement in this deal. I’d rather just get a new first with a HML and get the former partner completely out of the picture. I don’t really believe in ‘revenge’.
Posted by ken in sc on January 19, 2004 at 09:08:44:
What that means, and I think this is a good way of looking at it, is that rehabbing is a marketing gimmick. Sure, you may make a few dollars if you are good at keeping rehab costs low. But the purpose of a rehab is to make a property look good so that it will sell. The price you pay has to have the profit built in.
Posted by michaela-ATL on January 19, 2004 at 08:46:12:
that the deal has to be good enough when you buy it. You have to buy it low enough, that you could turn around and make money. SOme people are speculators and they buy property, banking on some future appreciation, rezoning or whatever issues. They don’t make their money when they buy, they maybe make it on the backend.
Posted by Nancy LA on January 19, 2004 at 18:17:14:
Michaela,
Glad to hear that your problem was resolved.I have heard many horror stories about partnerships. I’m new, just about to to get started. I’ll be froming a Limited Partnership and a C corp. Since I’m in a high priced area, I have found a partner from the news paper to work on deals together. I don’t feel comfortable wroking on any deals without a proper partnership agreement in place. What is the best way to do this? I don’t think a silent partnership will work in my case as he has more experience in this area, and I also need to have control over the situation. We were planning to put equal amount of $ in the deal and both hold title and split the profit.
thanks
Consider Joint Venture Agreement - Posted by Gerald-DC
Posted by Gerald-DC on January 22, 2004 at 22:10:55:
If I were you, I would seriously consider forming a LLC and then form a joint venture where your LLC would be “partner” and the investor who you just met would be a partner. In the JV, you specify the terms of the deal and note that the agreement pertains only to this deal and does not pertain to any future or past deals.
Speak to your attorney and CPA about this, but if you are just starting out, I can’t see how forming a C corp and a limited partnership will do anything for you that a LLC and JV wouldn’t do.
Just know that if enter into a partnership agreement, you may liable for all of your partner’s liabilities both personal and professional. That is, if your partner is sued, you could also be sued because you a partner.
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