The Science of Flipping - Structuring A Partnership On A BRRRRR

Episode Date: February 3, 2021

Structuring A Partnership On A BRRRRR

What's up, everybody? This is Mr. Burr. Thanks for tuning in. Today, we're going to talk about something that I get asked a lot about, and that is with the Burr method, buy, renovate, rent, refinance, repeat. If you have a money partner, someone who brings in capital for the renovation or whatever it may be, how do you structure that partnership? And more importantly, how do you structure the profits on the deal? So bottom line is it depends on how much value they're bringing to the equation. If all they're bringing is the money, the partnership should be pretty simple. The way you would structure it, there's different ways, but I think the best way is with a promissory note.

You could put them on title as a lean position, but in my opinion, all that does is convolutes the title and makes things just a little more complicated. If you do a promissory note, that in my opinion is the best way to go about it if you're using a cash partner in the deal. Now, if you're doing everything else, if you're finding the deal, if you have the contractors and you're doing the renovation, if obviously you're refinancing the property and you're taking all the risk on that end of finding the renter, all that stuff, you're doing most of the work. So don't give away. Personally, I wouldn't give away any equity in the deal. What I would do is structure it to where that money partner gets a percentage. So you structure it to whatever makes sense. You want to make it to where the money partner wants to do

the deal. So give them a good percentage. I would say anywhere from like 15 to 18%. The bigger the deal, the more you can give, or I'm sorry, the bigger the deal, the less you want to give because it could eat into your numbers really, really quick. So the way you're going to structure it, very simple. You're going to actually bring that money partner in with a promissory note, giving them monthly payments of interest only. And then once you exit the deal and you get all your capital back, you pay off that money lender. So they're made whole, they got all their interest and you did it quickly so that you can show them that you can deliver and they'll keep working with you. So that's how you structure it. Again,

with a promissory note and the way you structure the profits is just give them an interest only payment at closing. They'll be made whole with the principal amount that they helped you out with in cash. And that's all done through escrow. So you don't got to worry about writing them a check. They'll get paid back through escrow. Now, another question I get a lot of is if that money partner wants to actually be in on the deal, if they want to hold the property as a rental in their portfolio. Now with this, you can do it, but you have to understand that you're bringing again, so much value in the deal. You're buying it. You're renovating it with your contractors. You're getting it rented out. You're refinancing it. So what you want to do if they want it in their portfolio is you want to basically partner up with them and get a separate LLC that you guys both are partners in, that you both have

ownership of. So for instance, if it's one person that's coming in on it, you partner up with them, start an LLC. It's only a few hundred dollars and you guys split the cost of it. You're a 50% owner. They're a 50% owner. And then what you do is you guys do everything, refinance it, and then do a quick claim deed to put your LLC that you guys both own together onto title. And that way you guys both have it as an asset in your portfolio. And then furthermore, what I would do is actually set up a segregated bank account where all the rents go to that bank account. All the expenses for the property come from that bank account. And then again, that bank account, you guys own 50-50 as partners. With this, realistically, you got to have someone that you trust, someone that you know, because at the end of the day, it's a lot of moving parts. You want to do most of your deals

by yourself, you owning everything and you keeping most of the profit. But there are ways to structure it to where both parties win. You and also the partner that has the cash on the deal. So hope this helps guys. I get this question a lot. So I just wanted to clear it up in case you were thinking the same thing.

You hold all the cards if you're doing most of the work through the deal. So keep that in mind. You've got the leverage. The deal is always the leverage. So I appreciate you guys. Thanks for stopping in and we'll see you next time.