Investment Partners Technique

Real estate investment partners, – their money your time. This is a particularly good way to purchase larger, higher quality investment properties that, for whatever reason, can only be purchased with cash down payment. 

Your partners will put up the down payment and you will receive a substantial ownership position in the property.

Assume that you have located a three-family investment property that is on the market for 80,000 with a $10,000 required down payment. The existing mortgage is $60,000 and the owner has agreed to accept a second mortgage in the amount of $10,000. Approach the seller about deferring the down payment and spreading it out over three years. If the seller agrees to two years, that is all right; you will still have three payments (1/3 when you buy, 1/3 at the end of first year, and 1/3 at the end of the second year). The seller also wants 15% interest on the unpaid balance. You divide the $10,000 by 3 payments periods to come up with $3,333 per payment. Although this is better than $10,000, you do not have the $3,333 and you do not know anyone that does. Not many people have that much to invest, but more people than you realize have $800 to $1,200 to invest.

Approach several of your friends and acquaintances and explain that you are looking for three people to join you in a partnership. Each will be responsible for paying 1/3 of the amount due. They will each receive a 25% ownership for their participation; you will receive 25% for finding the  real estate investment property, negotiating with the seller, and managing it.

The obligation of the partners will be that each investment partner will have to contribute $1,111 at the time the property is purchased. At the end of the first year, each will again have to contribute $1,111 plus an additional $333 for interest. Do not forget, the interest is tax deductible. At the end of the second year again each will have to contribute $1,111 plus $167 in interest, again tax deductible. You have made no contribution, but you still own 25% of the property and are receiving the tax benefit.

To make the real estate investment attractive, you could promise to give your investment partners any cash flow from the property, and when you sell the property, they will get back the $10,000 they invested (not the interest) before you receive any of the profit. Whatever remains after returning the $10,000 will then be split by 25% to each partner. 

Your ownership interest is known as a subordinated ownership. You agreed to return your partners’ investments at the time you sell the property, before you begin to participate in any profit. You have no money invested, however, so you have lost nothing. Indeed, this technique can create tremendous wealth for you because you have purchased your ownership interest no money down, participated in the tax benefits, and participated in the true profit when it is sold. 

Real Estate Investment Partners To Converting Paper