Structuring of Investor Partnerships:
As real estate investors we need to not be focused on just one way to structure our business. We need to be open to many different ways and by doing so can allow us to add partners that could help us achieve more in our investing. We need to think outside the box more. We discussed this today on our Real Estate Graduate call.
A traditional way is to set up a Limited Liability Company and if it is with a trusted spouse it could be set up as a 50/50 partnership. One could also have the whole company in your name 100% but then set up your Estate Planning that it would be transferred to your spouse upon your death, etc.
When we think about a partner that is not a relative we could still do a 50/50 split but the partner might be in charge of acquisition and negotiation while you might be good at management of the property. Make it clear who will take what roles.
Another way to achieve more in investing is by getting a financial partner that has the credit and means to acquire the property but doesn’t want any part of running the real estate business. A partnership like this could result in that person just getting a certain percentage of return on the proceeds of the business. That way we as the real estate investor need to do all of the day to day work.
Some potential partners might be interested in feeling they want equal owner ship of the company and then it could be negotiated that they get a smaller return on the profit if they want more ownership percentage in the company.
As you can see there are many ways to structure partnerships that can benefit both parties involved.
Landlord rules can keep property values up:
We also read from an articles from cnn/money about a development in Georgia that the city planner ended up adding more low income housing to, to keep more people in the area when the development originally fell into foreclosure. The property was stricken with crime etc. until this change was made. They also controlled the rules of landlords so no properties became eye sores, etc. This is good to be aware of so we as investors can retain investment rental properties that don’t lose their value as well. Some of the lengthy article is posted below:
There are hundreds of stories of failed subdivisions left empty by the housing bust, where homeowners are stuck staring into vacant lots of PVC pipes and weeds.
There are very few stories where a half-finished development has been saved from ruin.
The rescue of one such development, by the city in which it is located, is being heralded as a potential solution to some of the worst mistakes of the housing crisis. The local newspaper, the Covington News, praised the project, writing that “a community has been brought back from the dead.”
That Covington, a city 35 miles east of Atlanta, did anything at all is unusual, said Ellen Dunham-Jones, an architect and urban-design professor at Georgia Tech who has a chapter on the subdivision, Walker’s Bend, in a forthcoming book, Retrofitting Sprawl.
“I really applaud them tremendously, since its pretty unusual: Cities just aren’t in the business of being developers,” she said. “In conservative districts, there’s a philosophical sense that the city as master developer smacks of socialism.”
But some residents say that the way the city intervened in this subdivision has just made life there worse — raising questions about whether or not government intervention in the housing market is a good thing, and about whether mixed-income housing can ever work.
The Walker’s Bend subdivision was approved in 2003, as developers started building in Covington, a town of 13,000 in fast-growing Newton County. The development was to have 249 homes across 50 acres, a layout that would have made most urban planners cringe– big homes with attached garages smushed onto small lots, with lots of pavement and oddly-shaped yards.
Sales stalled in 2007 with only 50 homes sold and 79 built, though the roads and infrastructure had been installed for hundreds more. Developer Timber South went bankrupt, leaving eight different banks the titles to 160 empty lots and abandoned homes. A map of who owned what in Walker’s Bend at the time looks like a Monopoly board—there were lots owned by Bank of North Georgia, United Community Bank, The People’s Bank, and Enterprise Bank & Co.
Home values were in free fall. Banks started auctioning off the homes to investors, who in turn rented them out to anyone who would have them.
The crime problems started soon after that. Families who still lived in Walker’s Bend were victims of daytime burglaries. Many of the homes were isolated, and residents felt unsafe coming home late at night.
In many places, the city would have shrugged and hoped that eventually, the market would come back, and the subdivision would be completed. But city planning director Randy Vinson didn’t want to wait.
Vinson’s plan for Walker’s Bend was unusual — he wanted the city of Covington to spend $1 million to buy up the empty lots there. They’d create more green space and parks, and work with developers to put in some affordable housing, a senior center, and perhaps a business incubator. Rather than allow landlords who don’t screen tenants, or who fail to evict bad tenants, to run the development, the city figured it could control who owned property in a time of rampant speculation.
“We thought, we’re going to have rental in here, its obvious, but we can’t let the vultures come in and pick it apart,” Vinson told me
But after the Habitat project, the city began planning new buildings in Walker’s Bend. It sold a handful of lots to a tax-credit developer, which built 32 single-family homes that it rents out to low-income tenants. Next, the city worked with the housing authority to build a three-story apartment building with 28 units, ground-floor classroom space, and a computer lab for the county workforce-development agency, called the New Leaf Center. That apartment building is set aside for low-income residents. A 26-unit apartment building next door is just being completed for permanent, supportive housing for people with disabilities transitioning out of homelessness.
The low-income housing rentals are well-built and spacious, and on the day I visited, the neighborhood was quiet and calm. They look like single-family homes with individual driveways and dormer windows on some homes.
There’s a large clubhouse for the families in the rentals to share, with eight white columns out front and large bay windows, something you probably wouldn’t find in many other low-income housing developments. There’s a playground with a gazebo and picnic benches, and sidewalks lead through the development, encouraging walking.
The city will have made a profit on the development when it’s completed. It earned back the first half of its million-dollar investment from Neighborhood Stabilization money. The second half will come when it sells the land for the senior housing. But the city will still own 45 lots, which it estimates it can sell eventually, earning a total profit on the project of $500,000 or so.
But even without the financials, Vinson does believe that the city is better off for stepping in to save Walker’s Bend.
“We hand-selected our landlords,” he told me. “There are landlords out there that could definitely bring down the value of the neighborhood because of the way they handle things — we found landlords who run very tight programs.”
Dunham-Jones, the architecture professor, says it’s too soon to make any final pronouncement on Walker’s Bend. Residents need to wait until the market picks up so that builders are willing to build market-rate, single-family homes to make the neighborhood more mixed-income.
“I do think that the concerns that its just going to become this ghetto of subdivised housing are legitimate concerns,” she said. “But the structure is in place to allow the market to play itself out — it’s certainly too soon to really tell.”
A two-bedroom home in Covington could now sell for about $85,400, according to Zillow, still 26% down from the peak in 2008. But it’s up 50% from a low less than two years ago. What’s more, Covington home values generally are helped by the development, and by fewer foreclosed lots on the books, Dunham-Jones said.
“It just depends on how you are defining success,” she said. “Are you judging success according to the homeowner who bought a house in a subdivision that sadly, went bankrupt, or are you judging it on a community finding ways to meet the needs of your low-income residents?”
This article originally appeared on The Next Economy, a joint project of The Atlantic and National Journal
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