My Friend Has Money…Should We Invest Together?

Hey Guys – today I want to bring you content that comes right out of our recent Insider Q&A coaching calls. These are calls we do every month where we give our Strategic Investor Insiders an opportunity to have direct contact with me and my partner-in-crime, JP Moses. In this venue, we answer any investor questions that anyone can come up with. No holds barred; nothing held back. It’s a pretty sweet deal and we get some really great questions coming to us.

Here’s a question from Vince who wants to know if he and his friend should invest together. This information is relevant to our ongoing discussion on this blog about private money, and I wanted to share it with you.

Below is a transcription of that conversation. Read it and then chime in with comments below and let us know what you think.

Vince’s question

“I have a longtime friend who has approached me about investing in real estate. He wants buy and hold/rent but doesn’t have the time to do this on his own. I have the time and he is willing to spend $40,000 to get this going.

My thought is to do a joint venture and use his money for marketing. I would start with wholesaling to build up cash using HUD bidding with transactional funding and marketing for off-market properties using subject to and lease options, etc…

Eventually we could rehab and hold or retail the rehabbed properties. Any ideas?”

JP’s perspective

Vince, you’re in a fantastic position – where you have an investor who has a pot of cash and doesn’t have the time to find or work the deals. You have the time and the knowledge. It’s a great match.

Here are my first thoughts… You said your friend wants to buy and hold. And you didn’t say that he wants to do anything other than that. As you outlined your plan, it sounds more like you’re going for wholesaling and retailing.

My first question for you to think about is: Are your goals congruent with your future partner’s? I would caution you to make sure that you construct a plan where what he’s aiming for, and what you’re aiming for, are in total agreement.

If you go down this path and form a joint venture plan, or a partnership, be sure to have a specific actionable plan on your side of it. In other words, how you will go about making this happen?

I don’t know your experience level, but I do know that most beginning investors tend to be erratic in how they approach their business. They have no specific plan – it’s a little of this and a little of that. It kind of sounds like this is what you’re describing in your note. You’ve talked about:

• HUD bidding
• Rehabbing
• Marketing for off-market properties
• Buying and holding
• Subject To
• Lease options

I’m not a proponent of the tool-belt approach to real estate investing when you’re new. This approach says you do a little bit of everything. You have all these different tools, tactics and strategies. Then you can whip out a tool and apply it in the deals that come your way.

I can say from my own experience that this is exactly what I did for the first half of my career. It’s a great way to be a Jack-of-all-trades and master of none. You never develop expertise or mastery in any area.

By far, the investors who are the most successful are the ones who become specialists in a certain field. Think of the successful investors in your area. Chances are the ones who are the most successful are those who have specialized – and are known for – a particular facet of the business.

This is true in any profession. For instance, the brain surgeon is going to make a lot more money than the general practitioner.

For that reason, I encourage you to narrow down what your plan is going to be and make it actionable as opposed to a little of this and a little of that.

Create defined goals on a defined path.

Then create a well-defined agreement with your partner, and not just a hand shake. No matter how solid your friendship may be. I can’t tell you how many friendly agreements I’ve gotten into that were not in writing and they ended up badly. This is not so much a lack of trust, but lack of good memory. Two people will not always remember the conversations the same way.

So get it all in writing.

Another option to consider is wholesaling houses. I like that you’re thinking about HUD because I’ve been working with HUD only recently. In my area there are a lot of great landlord deals. They are deals that may not make sense for a rehabber – someone who’s looking for a $40K payday – but for a landlord who is looking for cash flow there are some really great ones in HUD. With these you can get it on contract and make a couple grand by flipping them.

That might be a solid direction for you. You might consider wholesaling houses for your partner that you could hold. That would be more congruent with what your private money investor wants to do.

Something else to think about is rentals. I don’t know if you have any plans to get into the rental arena but there is a potential opportunity for you there. This guy has money and the interest, but no time. He probably doesn’t have time to manage his properties either. You might be able to work out a scenario where you and he both get into rentals debt-free. It would be a partnership arrangement. It might look like this…

You put forth the idea to your partner:

“For a year, let’s utilize what you have and what I have and let’s focus exclusively on making quick chunks of cash by wholesaling. We can use that cash to build up a cash reserve.”

Then the two of you can go into a property together. Because he puts up the cash, he becomes the private equity partner to buy a property without any debt. You bring the deal and the management to the table. For long-term holds, this is a great strategy.

Patrick’s input

I agree with JP in that you need to stick with at least one strategy for a defined length of time. That might be one or two years, working with it until it is a finely-tuned machine. Then plan to add additional strategies.

With regard to the money, I suggest you use as little of the capital as possible for your first deal. That way you can self-fund as you move forward.

For instance, choose some free methods for finding deals. When I was first starting out, I knocked on doors of people who were in foreclosure. It took a little bit of gas and time, but that’s about it. I also networked with a lot of the wholesalers in my area. There are many low-cost ways to find deals.

I would spend very little of that capital on anything other than using it to acquire a property.

The windup

We hope this was helpful, Vince.

Even if you don’t have a private money partner yourself, hopefully you’ve gained new insight and perhaps had a few of your questions answered as well.

So take these ideas – process them – and run with it. God Luck

Whatcha think?

Do you have stories about partnering with a friend? We wanna hear about them – good or bad – in the comments section below.