Partnering with a property manager on rental property?

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I was wondering for the people who own real estate and rental properties out there - I have read the average commission fee is 3-15% for a property manager.

I have had a person I have known well say to me he would be willing to go in halvsies with me on a property.

That is, I put up 10%, he puts up 10%. Finance 80%. He manages property for repairs and maintenance. I collect rent and find tenants. We split equity and rent proceeds 50/50. He even suggest we just continue to roll the rental income into the home equity with advanced payments. Then when paid off, split monthly profits. Or just sell it, pay capital gains, and go our way.

I am not handy and definitely need someone with an ability to triage and fix property problems. I am a good "numbers" guy though and a good negotiator and so forth.

We would form an LLC and so, i would be the "money guy" and he's the "fix it guy."

Any opinions? Does this sound like too high of a cut? I am thinking not, because he is actually footing some of the equity, whereas the property management firm who takes 3-15% doesn't share in risk.

What say all the Property Moguls out there?

[Slug]

I'm not sure what you're asking. It seems like you're putting in equivalent equity and splitting everything down the middle. Cost of repairs should also be split.

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Well, I am just asking for an opinion on the construct of the deal.

WOuld I be better footing the entire 20% and going with a property management group? I would think shared risk and reward would be better though.

[jIM_Ohio]

I was wondering for the people who own real estate and rental properties out there - I have read the average commission fee is 3-15% for a property manager.

I have had a person I have known well say to me he would be willing to go in halvsies with me on a property.

That is, I put up 10%, he puts up 10%. Finance 80%. He manages property for repairs and maintenance. I collect rent and find tenants. We split equity and rent proceeds 50/50. He even suggest we just continue to roll the rental income into the home equity with advanced payments. Then when paid off, split monthly profits. Or just sell it, pay capital gains, and go our way.

I am not handy and definitely need someone with an ability to triage and fix property problems. I am a good "numbers" guy though and a good negotiator and so forth.

We would form an LLC and so, i would be the "money guy" and he's the "fix it guy."

Any opinions? Does this sound like too high of a cut? I am thinking not, because he is actually footing some of the equity, whereas the property management firm who takes 3-15% doesn't share in risk.

What say all the Property Moguls out there?

I would suggest rolling rent into a second rental (not paying down first), but that is more of a risk/reward thing.

I would also suggest you establish how to PICK properties and confirm this process. Meaning if you picked fixer uppers, you are probably asking him to do more work initially, and there may not be an easy way for your friend to recover his costs.

You should also outline things like flipping vs renting- is goal of company to flip houses, rent them, or do both?

How do you decide when to refinance? If you refi, do you cash out or just lower the payment?


I have a friend which rents out 2 properties with his brother- and each of these is a good topic to discuss. Consider them an FAQ from a person which knows someone with two properties.

[Slug]

Those are good points and why I'm buying my first rental property by myself. I would rather know it all before going into a partnership. That's not my recommendation for you, it's just my path.

Regardless of partnering or not, you definitely need to determine whether you're looking for fix n flip, extract cashflow, or go for ROI and be cashflow neutral.

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Well, I think practically speaking you have to cross "Flipping" right off your list of business goals right from the start.

Who in this market can "flip" a house in like 3 months? This market is declining or at bottom and flat at the best, maybe a slight tick upward. The bond market is trashed; interest rates are rising again.

The goal is equity building and rental income. How we mix that I am totally flexible on. The conservative thing to do would be pay down the debt and get 4% return on the money (while escrowing for taxes I guess). The risky thing to do would be to aquire more rentals but we would need probably 1-2 years of rent anyway to do that to get a downpayment together again.

Symbolically, I'd like to see the house as my "kids college education" incarnate either generating free and clear monthly income at that point, or sell it in 10-15 years, near the end of the mortgage.

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PS: Probably no "fixer-uppers". Maybe foreclosures though, if they aren't trashed.

[Slug]

Sounds like we're looking for the same thing. I'm starting a series of posts on my blog about my learning process. I already have a good Excel sheet to use to exam properties off data from MLS listings and Googling for rent proxies. PM me with your email if interested.

[jIM_Ohio]

Well, I think practically speaking you have to cross "Flipping" right off your list of business goals right from the start.

Who in this market can "flip" a house in like 3 months? This market is declining or at bottom and flat at the best, maybe a slight tick upward. The bond market is trashed; interest rates are rising again.

The goal is equity building and rental income. How we mix that I am totally flexible on. The conservative thing to do would be pay down the debt and get 4% return on the money (while escrowing for taxes I guess). The risky thing to do would be to aquire more rentals but we would need probably 1-2 years of rent anyway to do that to get a downpayment together again.

Symbolically, I'd like to see the house as my "kids college education" incarnate either generating free and clear monthly income at that point, or sell it in 10-15 years, near the end of the mortgage.

Flip-

could be buy a fixer upper for 60k when most houses sell for 80k.

repair it for about 5k-10k

then rent it out or sell it for 80k


Meaning its not just buy it and sell it, there is labor done in between and the value of the labor exceeds the cost of the labor.

There are pluses to this which traditional real estate (just buying to rent) offers is your spread is high enough.


Example-

buy house for 80k in an area where houses usually sell for 120k-140k. Put 25k down (more than 20% of 80k) and rehab house to value of 120k. This creates 40k of new equity and 65k total equity.

Refinance house and cash out, leaving 30k equity (20%) and taking 35k cash out. Rent the house out based on 120k value.

Repeat- take 25k cash and put down on a property worth 80k which should sell for 120k.

As you can see, if your spread is enough, you can refinance your way to adding cash and equity into situation. The bigger the spread, the easier this is to accomplish. There is obviously a cost to adding 40k equity- running electric, fixing walls, trimming grass, replacing a heater... but those items should cost 10k-15k so most of equity is cash (some of equity goes to recover costs). The higher value lets you get more tax benefits too (higher depreciation).

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Another thing I was thinking too. . .usually I waltz right past an ARM when considering a mortgage.

But for a rental, it may make sense.

If I am getting 3.25% on a mortgage, I would really be able to roll into the mortgage a lot of extra equity payment. Then, if mortgage rates were higher (which probably they would be), when it came time to refinance, the amount of equity would be considerably lower.

I will consider it.