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Thread. A few folks have reached out to me re: teaming up with friends/family to buy real estate and Its been mostly black folks, and largely black women. I am excited about this bc it’s needed here’s some general advice.
1. Biggie said “money and blood don’t mix” and then the rest actually didn’t age well. There’s some truth that business complicates personal relationships. Partner with folks that you believe in and like, outside of just a personal connection. Some family are assholes
2. Deeply understand and discuss roles, responsibilities, obligations, and expectations. Too many people assume best case scenarios and are unprepared for when something goes wrong. Which it will. See @PinkPoloShorts tweet about a building catching fire.
3. Understand and document what you’re trying to do very specifically. “We want to make money!” Isn’t a strategy. “We want to achieve a 9% minimum annual cash on cash return on a $200,000 equity investment in residential in Atlanta and hold for 7 years” is a bit better.
4. One chef should be cooking so everyone eats. Too many cooks in the kitchen makes a mess. One of the partners needs to be the operating person who makes decisions and executes. Someone has to decide we buy this, not this, renovate to this standard, accept this tenant, etc.
5. You do this for consistency and speed. If you’re a value play group and you find a deal deal, you need someone who can move fast to lock it up. You also want underwriting to be consistent so you can scale this operation and grow it.
6. The GP (chef) should be compensates in a way that 1. The better they perform, the more money they get and 2. They have skin in the game so that they’re on the hook if their decisions don’t pan out. This protects the dinner guests from getting poisoned.
7. This can get tricky but the dinner guests (LP’s) need to be equally yoked. If there are capital calls for repairs/improvements or new acquisitions, there needs to be a fair and understood division of these costs. When returns comes back, it has to be fairly distributed.
8. Hire expert third parties. Especially important if the group is largely novice. Hire really good lawyers, brokers, Property managers, contractors, etc. If you have to skimp on these to make a deal work, it probably is not a good deal.
9. Investing should improve the quality of your life and that means peace of mind as well as returns. Celebrate your wins, learn with and from each other, and have a good time!
10. Forgot to add. Use the group dynamics to get the most out of your banking relationships. Pitch all the local lenders and use the carrot of moving your personal deposits if they give you better terms.
