Should I use hard money for my next deal or bring in a partner?
I hear this more than any other scenario. “I’m thinking about taking a partner on the deal, I will do the work, he will put up all the money, we split the deal 50/50”. On the surface it sounds great, doesn’t it? You have none of your own capital at risk, you just do the work and get paid. It’s all great until your partner pulls the partner card!
Here is the list I have my borrowers or potential borrowers use when asking themselves the question “Take a hard money loan on this deal or take a partner”
- Are you a control freak? If you answer yes to this then the following questions are irrelevant.
- Do I want full control? A partner means 50/50, it means all decisions (especially when you are not the check writer) are not in your hands. Even something as simple as a disagreement on paint color can hold up your project!
- Do you have OCD when it comes to your deals?
- Are you going out there to actually do the work or are you going to be a project manager?
- Are you partnering with an “old friend” – the reason I ask this is you need to be cognizant of why you are asking that person to be your partner. Are they an old friend so you are comfortable partnering with them? If that is the reason, then move to another partner.
- This to me is the most important when I do a deal…. Is my money in the bank making me enough money to keep it there and sacrifice half of the profits on my next deal?
To me a partnership in real estate is like a marriage… there are some good ones that last a long time, and there are some bad ones that only end when the money problems are solved.
I’m sure some of you reading this are saying to yourselves “I partner all the time and there has never been a problem”. A lot of this is targeted to the new investor that doesn’t have a lot of capital but wants to do a deal. They need to realize that when you bring in a partner you are giving up control.
If you think only good things happen with partnerships, then you haven’t done enough deals yet! Remember the leading cause of divorce is what? Marriage! How do we know this? Because the sample size is large enough to tell us that.
While it is true that if you don’t have the money a partner might be your only option, if you have cash on hand, look at the numbers below that compare hard money vs partner deals.
Hard Money Loan vs Partnership Comparison
[table id=Hard-Money-or-Partner /]
*based on 80% of purchase and 80% of the repair cost loan + financed points, **assuming 4 points (4% x 120k loan), ***on a 6 month loan at 12% interest only, **** assuming 3% realtor commission and 3% seller paid closing costs
In the world we live in, where you barely earn any interest in the bank, would you rather keep your 30k in the bank and give up half of the control of your project to make less money? I think the numbers above should give you your answer.
If you have a deal you want us to take a look at and run the numbers for you apply here or email us at hardmoneyman123 at gmail dot com