Incorporating a partner into my rental property

[MPD]

Hello,

I’m currently looking to add a partner — 50:50 — into my existing rental property, and not sure how to evaluate what the buy in should be? Here are a few details and round numbers.
Original Purchase Price: $110,000
Value of Property: $170,000
Owing: $120,000 (at $85,000 I took out $50,000 for non real estate investments)
Monthly Income: $1100
Monthly Expenses: $1050
It was my principal residence for 10 years. It will be 3 years in the spring that the unit has been occupied, by the same tenants.
My purpose to bring in a partner is to use the buy in money to help with a down payment on a principal property. If someone is able to help me break down the evaluation, that would be greatly appreciated, thanks!

 

[Thomas Beyer]

If mortgage is $120,000 equity is $50,000. If you assume that 30% is for your work and expertise, 20% for mortgage qualification and 50% for money partner then a 50:50 split is warranted for $50,000. A simple JV agreement should suffice. No need to incorporate.

Decide when to sell, or how to determine when it can be sold ( decided by you ?, by investor ?, by mutual consent only?, or by an appreciation formula?), how to handle potential cash calls if roof leaks or prolonged vacancy, etc

Two related posts ( more in my book )

50/50 JV - How is this fair ? http://myreinspace.com/threads/50-50-is-this-fair.1983/

Red, green and blue money - what are the three crucial elements of real estate and JVs: http://myreinspace.com/threads/blue...expert-deserves-to-make-some-money-too.29091/



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[MPD]

If mortgage is $120,000 equity is $50,000. If you assume that 30% is for your work and expertise, 20% for mortgage qualification and 50% for money partner then a 50:50 split is warranted for $50,000. A simple JV agreement should suffice. No need to incorporate.

Decide when to sell, or how to determine when it can be sold ( decided by you ?, by investor ?, by mutual consent only?, or by an appreciation formula?), how to handle potential cash calls if roof leaks or prolonged vacancy, etc

Two related posts ( more in my book )

50/50 JV - How is this fair ? http://myreinspace.com/threads/50-50-is-this-fair.1983/

Red, green and blue money - what are the three crucial elements of real estate and JVs: http://myreinspace.com/threads/blue...expert-deserves-to-make-some-money-too.29091/



Sent from my iPad using myREINspace

Thanks for the info, Thomas.

Mike

 

[Thomas Beyer]

... were all the work is shared, does that change the percentage break down that you've provided? ...The plan is by partnering up we can increase our portfolio together. ...

Mike

Do not partner with people that have skills similar to yours. Pooling capital is OK and "green money" deserves a return (either fixed say 8%/year or 50% of the upside), of course. As does "red money" ie mortgage qualification, say 20% of the deal or 1% of the loan amount per year. Plus the "blue money" ie work. Tough to delineate this ie who is looking for assets, who is managing it, who is evicting folks, who is marketing the property when vacant and selects among potential applicants and does property showings, who is organizing the necessary new fridge or paint job or supervise the roof repair ? Doing it "together" is difficult i.e. what happens if one person is sick or slacks off ? Best to assign a value, say 10% of rent collected or 30% of equity upside to ONE person.

You already have a mortgage AND an existing asset AND an existing tenant. That all has value to a cheque writer and you, and only you, have to be compensated for it, not the cheque writer ! Re-read the above links with suggested $ or equity assignment for red, blue and green money in a win/win fashion.