Multiple Income Streams by Example

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No Money Down Partnership Deal

This isn't the house :)This isn't the house :)This real estate deal is a deal that was found by a guy that used to work for me back when all I did was real estate. Here are the numbers if I had done the deal myself.

The Numbers
Asking Price: 70,000
Offer Price 50,000
Countered and accepted at 55,000

The property is worth fixed up about 170,000 but needs between 25,000 and 35,000 to get it to great condition. Roof, flooring new interior exterior paint and a new kitchen.

Selling at retail without a realtor would net close to 65,000 to 75,000 Depending on money costs. With a realtor knock off some more.

How This deal actually went
As I said above, I didn't find this deal or was even looking in that market. Recently I ran into a friend that had worked for me back 6 years ago. He said he was wanting to get into flipping and wanted to see if I could do a few deals with him. I said sure Im still involved and would love to go over things with him.

It wasn't more than a couple weeks and he called me said he had a property he wanted me to look at. So I checked it out and said great how do you want to do this.

Basically he wanted a partner on the deal. He is a contractor that has some big jobs lined up but they are on hold. Plus I think the wait was draining him. Because of this he probably couldn't do a standard loan and do this on his own. So I said sure. Ill buy it through private or hard money his company would fix it up and we would sell it. If it doesn't sell fast I can refi myself and hold it or continue the sale.

Getting some cash upfront
Knowing that he didn't have a large amount of cash --needed to start project depending on contractors cash and his/her accounts and suppliers-- I said lock the property up and Ill buy it from you marked up 15,000. Well do a fixed fee contract and you will get 15000 at closing. You can then use this money to start the project and keep everyone paid until the construction draw. (sometimes you will get construction draws upfront but doing it this way makes sure there is money to start the project)

The money upfront is a chunk of his profit upfront. He will pay his employees and suppliers with it but that will be reimbursed. Because of the way it is structured with him getting profit upfront and me taking on the liability we agreed to get as close to my 15,000 out of the hard money. Then we are even.

Closing the property out
This project is currently going on in the end of the construction phase. If the property sells fast it will be an even split after all fees etc. If it doesn't I might have to refi and at that point he will get a little more money but the partnership will end at that point.

Doing it this way saves a lot of headaches down the road. Plus if Im holding it with a bank loan I have the risk and choosing to do what a partner wants when they don't have any of the risk could end badly.

Jason (not verified) wrote on Mon, 05/06/2013 - 19:47:

Are you using your own money for the financing. If not did the bank have any issues with your friend getting that much money at closing. Especially since the sales were so close together. Thanks

The Rookie wrote on Mon, 05/06/2013 - 20:03:

No, I have hard money and private money that I have found throughout my days. Hard money is easy to find. Private is a little more difficult. The hard money gave all but 5000.00 of this deal. I used private for the 5 grand :) zero down essentially.

I guess a bank might care about the assignment fee but the hard money doesn't care. They care about the numbers.

wholesalenewbie (not verified) wrote on Tue, 05/07/2013 - 14:21:

Hey Rook,

I saw your comment on biggerpockets and followed it here. Loved your reply to nick. I too like Nick am having a hard time with real estate.

I have no idea what I am doing and I've listened to almost everything by everyone. Been on BP for a while, its been great for feedback but I can't seem to put stuff together. Your comment made things more clear so I came here.

Like Nick I can't find the killer deals that they talk about. What am I doing wrong. Unlike Nick though if I did actually find one I have no money. Where should I start.

Your posts are great wish there were more.

The Rookie wrote on Tue, 05/07/2013 - 21:42:

First, Glad you are on BP. I have an account there but my posts with rook aren't actually attached to an account, great site good podcast too.

So to answer your question I really need to ask a question. How are you searching for the properties, what are you doing. Just getting on realtor.com or the mls will be tough, most properties like that aren't listed. Once in a while though. Craigslist is the same. More deals like that are found on craigslist though. You have to scan everday if thats your route.

Ill probably be posting about this soon so hang in there, although I was hoping to do some non real estate articles. Ill see what I can do. Bottom line is there are direct mail, bandit signs. Drive for dollars. Ill write about these as well but google and Bigger Pockets are good for researching these.

The money well, Read that post again. Im not using any of mine for this particular one. Hard money and private. Again Ill write about it but for now google youtube BP REIClub.com etc etc. Hope this helps.

Mike (not verified) wrote on Tue, 05/07/2013 - 21:30:

How did you find a deal like that. I have been looking for a place to live in for a while and can't find anything even close.

The Rookie wrote on Tue, 05/07/2013 - 21:48:

Mike,
Take a look at my above reply. Are you an investor or looking to be, or just looking for a house. Finding deals like that are not tough although I said tough in the above post, they are just a matter of looking in the right spots and that can sometimes be some work.

This one was found by someone else though, the industry calls this a bird dog. He ended up wholesaling it to me but we are partnering on the deal. It was actually listed so it would have been on the mls but he gave a real low ball over and it was countered with a pretty low price under the listing. Plus it was owned by the city so that helped. A realtor was involved which actually made closing a little weird. Realtor was good though and understood what we were doing once I talked to him.

Derek Chamberlain (not verified) wrote on Thu, 06/06/2013 - 11:57:

Wow, that sounds like an awesome deal! Good luck taking it through to completion!

The Rookie wrote on Thu, 06/06/2013 - 17:13:

Ya Its a pretty good deal. Thats about where i typically am at for profit on rehabs. Cost of construction went over a little on this one but only about 6 grand. Mostly electrical I relied a lot on the partner on that one. He was pretty new to full remodels. I should have been a little more involved in guiding him through his first flip. It wouldn't have killed the deal anyways. He was more concerned than I was I think.

Another project I'm doing will probably be twice the profit and no partner so no split of profits. It will probably be my highest profit on a single family home flip. Not sure if ill talk about that one here but its worth noting for people that think flipping doesn't work anymore.

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