How to form a Partnership to Invest in Real Estate

When I was in my early twenties, I decided that I wanted to buy one property a year. The first year, I saved up $10,000 and bought a one-bedroom apartment. The next year, I bought a duplex. But in year three, I didn’t have enough money saved for a property. But I knew that if I could put together a good deal, I could find the right partners.

Around the same time, my neighbor renovated his apartment, and it was beautiful. I approached him about renovating a dilapidated apartment in Redhook. He was excited, and said it would need about $200,000. The building was $500,000.

In total, we would need $300,000 to get this project off the ground. I had $50,000 to put toward the project, and I took out a $50,000 HELOC loan. My contracting partner had $100,000 to put down on the property. We approached one of my friend’s dads, who was interested in real estate, and he decided to put $100,000 into the deal as well.

When the deal was complete, I was able to talk down the sellers from $500,000 to $400,000. The renovations cost slightly more and we spent $220,000.

But how did we put the deal together?

H2 - Creating a Joint Business Venture

We started out by creating a joint business venture. You can form a joint venture without forming an LLC for your first few deals.

We pulled up a template online and filled it out. Then we took it to an attorney to help ensure everything was spelled out correctly. Starting with a template was helpful because these joint venture templates allow you to hammer out the details of the deal before creating the LLC.

Every joint venture has the same key elements:

  • Business Address

  • Purpose of the agreement

  • Names and contact information of the members, including addresses

  • Duties and obligations of all parties

  • Profit or loss allocation

  • Dissolution terms

A joint venture is where you jointly agree to all the terms. You can add sections; you can remove sections. The goal is to have an agreement that all parties participated in the creation of and agree to all the terms. You can find a free template online, or have a lawyer draft them up.

As a caveat, this is the best way to do residential deals, but not commercial deals. Commercial real estate is any unit that is five doors or more, restaurants, storage units, strip malls, etc. With these types of deals, you definitely want to use an attorney.

H2 - Selling the Property

At the end of the day, we sold this property for $1,075,000 to none other than Barbara Corcoran, the New York Real Estate Mogul. On this deal, we made $455,000. Way more than the $200,000 we had estimated.

That gave me the confidence as a 24 year old that I knew what I was doing with real estate, but also, we didn’t have to use any of our contingency plans.

We could sell the building for as little as $700,000 and still get our money back. Or, we could rent out the two apartments on the top and the store front on the bottom to cover our mortgage until the property sold.

Having contingency plans is crucial when going into a real estate deal with multiple partners.

H2 - The Bottom Line

Just get started.

When someone is selling a properly, you’re helping them out. They’re selling that property for a reason. You’re helping them out by buying that property.

But then turn around and do what you’re going to do with the property, either rent it out or sell it. Your renters or new owners are helping you out. It’s a symbiotic cycle of real estate.

That’s why it’s so important just to get started.

And you can get started with no money - if you find partners.

H3 - Finding Partners

If you find a deal, you can find investors. Once you’ve had one successful deal, you can find more investors. The important part is putting together the deal. If you’re looking for investors, join my discord. There you can find people looking for investment deals.

A general rule of thumb is that you need 25 percent of the total project (house and renovations), so if you have a $400,000 project, you need to put $100,000 down.

Have any questions? Join my discord!

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