If you've listened to me long enough, you've likely heard me say the goal of the first flip is to do it in a way that makes you want to do a second one. That definition is different for everyone, and only you can define it for yourself. Sometimes when you're getting started, you may not have as much time as you have money or as much money as you have time. When this is the case, I often recommend partnering with someone who has what you don't.
I recently did so with two of my coaching program students and within just a couple of weeks of partnering, they are already knee deep in their first flip!
Tune in to learn:
...and so much more!
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Intro: You're listening to the Flip Houses Lego girl podcast where we educate empower and celebrate everyday women who are facing their fears juggling family and business embracing their awesomeness and wholeheartedly chasing their dream of flipping houses. Each episode delivers. Honest to goodness tool tips and strategies you can implement today to get closer to your first or next to successful House flip.
Here's your spiky haired breakfast taco loving host house flipping coach Debbie DeBerry
Debbie DeBerry: What is going on, you guys? It's Debbie here and this is Thanksgiving week so. I hope that you have some fun friend or family events planned and you can be super present and just enjoy the time with them. So I am incredibly grateful that I get to do exactly what I love to do. What totally fills my heart and at the same time I get to honor my mom and who she was in the world and who she was to me. Man you guys that it just makes me so fulfilled and it makes me a little bit teary but that's me. I'm super sentimental and cry at commercials. So there you have it. Anyway I do hope that you know how grateful I am for you that you show up that you listen that you're active in the Facebook group and that you interact with me and each other. And it's just awesome. This community we're building is freaking awesome. Thank you for being a part of it. All right let's do a listener shout out real quick. This is from Sissyv11. Sissy says awesome information for anyone interested in flipping houses great strategies interesting guess real information that you can put to use today. Boom . She summarized it right. She nailed it. Thank you sissyv11, I appreciate your feedback. Thank you for taking the time to let me know that what I'm doing matters. It means the world to me. If you haven't already. Would you please do me a huge favor and leave a rating and review for this podcast. It helps me reach more like minded people and it lets me know that this show is actually interesting and providing value and that's what I aim to do. I'm not trying to add more fluff to the world. There's plenty of that. Thank you for taking the time to do that. I really appreciate it. So let's talk about something that has been coming up a lot recently in the Facebook group as well as it just comes up often. It's a common topic and that is partnering with people questioning whether you should partner with somebody else on your FIX AND FLIP deals. Questioning who that should be how it should look what the partnership should look like how to do it really. So we're going to dive into all of that today on this episode let's start with why you would even want to partner with somebody and maybe you don't. And that's OK. You don't necessarily have to partner with somebody to be successful. I've personally flipped houses solo since 2008. So you don't have to have a partner. However what I found is that there are instances where partnering with somebody can be incredibly beneficial. What I've discovered over the years is really there are three things that you need in order to be successful in this business. One is knowledge to his time and three is access to capital or money. So if you are lacking one of those things it's highly unlikely that you're going to be successful. So what you do is you partner with somebody who has that thing that you're lacking. For example the women that joined my program I am basically their knowledge partner right. They join my program I provide the knowledge and the support. Some of them don't have access to a bunch of capital. Some of them don't have access to a bunch of time and you've got to have capital in time. So what I've seen is. Specifically referring to one partnership that came together recently and they actually just closed on their first flip purchase . They're demoing and doing all that fun stuff. This week they are exactly this combination. One had the time and the other one had access to capital and there in my coaching program and I honestly thought that they would be a really great partnership not just because of the skills they had and the things that they lacked but also because of their personalities. I had gotten to know their personalities and I thought you know what. I think they'll mesh and they have and they've put some things in place to protect that partnership and do this the right way and we are going to talk about that for sure because the best way to mitigate any potential conflicts is by establishing a clear agreement upfront way before you even start doing business together. And it all has got to be in writing . Everything has to be in writing. I don't care who you end up partnering with. I don't care if it's somebody you've just met or if it's your mother or your very best friend of 47 years. I don't care. You have to have everything in writing period. That is non-negotiable . OK. Do you feel how important that is. You hear it in my voice. Okay well it's important. All right. I want to talk about some of the pros and cons of partnering with somebody to do this fix and flip deals. So for one like I mentioned the right partner can bring those extra resources or those things that you don't have to the table and that can be capital or time or even maybe they're super connected to the community. Connections can be beneficial as well right. Additionally having a partner to do this with can provide another perspective when you're analyzing deals when you're looking at the larvae of a property when you're looking at the estimates when you're trying to determine what to do to a project. All of those things. There are so many teenincy and humungous decisions that are made during a project that it's just nice to have somebody else to bounce things off of. Your weaknesses should be counterbalanced by the other person's strengths . Don't partner with somebody who has the same weaknesses and the same strength that defeats the entire purpose of partnering. Ideally you will partner with somebody who makes up for what you lack and you do the same for them. Now let's talk about some of the kinds of partnering with somebody. The partners may have very different management styles different leadership styles different communication styles different organizational styles all of those things are really important when you're managing a project with so many moving parts and pieces. Partnerships can place a lot of unnecessary stress on friendships or relationships with family members and in some cases if one partner is bringing more to the table or they feel like they're bringing more to the table that can create a disparity in equity or skills and that will cause some strain on the partnership. Like I mentioned earlier I'm going to talk about ways to mitigate these potential areas of conflict. All right ultimately you need to weigh the pros and cons before you decide to commit to partnering with somebody to take on this endeavor. Maybe you want to go it alone. The first time and then maybe partner later maybe you want a partner the first time and not later. It is entirely up to you. And again you might need cash and if you don't have it. Finding somebody with it who wants to partner with you is obviously a great way to find it. So how do you structure a partnership for fixing flip purposes. Number one you've got to determine if a partnership is even right for you. Like I've mentioned several times throughout this episode secondly you want to review your strengths and weaknesses and do this honestly y'all. If you're like my 9 year old son you are the best at everything there ever was and everything there ever will be. Be honest . What are your strengths and what are your weaknesses. The third thing you want to find someone who complements your abilities so where you are weak they are strong and vice versa. Number four you want to evaluate the potential of that partnership. Number five establish very clearly defined roles and expectations. Number six you will create the terms of the agreement. 7 You want to keep the process simple okay. There are lots of ways to overcomplicate things keep it simple number eight. You want to protect yourself from potential challenges and a solid agreement will do just that. And then number nine. Review your business goals together. See if you guys are on the same page because if you're not I highly doubt that it's going to be a beneficial partnership even for just one flip. You want to make sure you mesh. You guys this should be fun . If you're forcing a partnership because you lack time or you lack capital if you're forcing a partnership I promise you it will struggle. And I promise you you won't enjoy the process. And remember the whole point of your first flip is to do it in a way that makes you want to do it again . So forcing a partnership is not the answer. That's not the way to do it . Just because your cousin or your sister or your very best friend in the entire world wants to flip houses with you. Doesn't mean that you would make the best partnership. So do your due diligence and be honest OK so once you have identified the best partner for you at least for this next flip right. It doesn't mean you're married to the person forever. Well maybe you are married to the person. Maybe that is your best partner . But for the sake of this episode let's go with it's not your spouse or significant other. OK so once you've identified the person now it's time to put together that written legal agreement that outlines everyone's roles and expectations. OK keeping everything well documented is so important so that you can have a paper trail and both partners feel safe and secure. So what should this document include. For starters it needs to clearly state each partners roles and responsibilities meaning how much time is each person dedicating how much sweat equity is each person dedicating. What are the consequences if a partner doesn't pull their weight who has the final say on choosing a property or a project plan or a budget or hiring the contractors or managing the contractors or making payments. The next category is professional services . So if one of the partners is going to double as the contractor. How will that person be paid for their contracting services. Or if one of the partners is doing some of the actual physical work . How are they going to be paid for that. What does that look like. How does that turn into equity so I'm going to give you an example. OK so let's say there's a partnership right and there's thirty thousand dollars of net profit that will be split let's say partner a put in ten thousand dollars worth of cash and let's say partner b put in ten thousand dollars worth of sweat equity. How did we come up with that figure. Well for this example I chose 50 dollars an hour as a reasonable pay rate so if partner B worked eight hours a day on 25 days at 50 dollars an hour then partner b put in ten thousand dollars worth of sweat equity so each partner has an equal amount of equity in the deal. You see how that works . Meaning when they split that 30 k they will split it 50/50 because they both have the same amount of equity that ten thousand dollars in the project. That's how when somebody is using sweat equity that's how you value it. What that pay rate is is entirely up to you and your partner. You've got to come to an agreement on that. Obviously I would use 50 dollars an hour. You may use something entirely different. It's up to you but that's how it works. OK so that leads us into the next category or item that would be on your document. And that is repayment plan. So if one person is putting in cash equity and another person is putting in sweat equity. How are those going to be repaid. Obviously that's going to be at closing but that needs to be clearly stated additionally. How are you splitting the profits . Is it 50/50 or are you already going into the deal knowing that you are putting in more sweat equity than the partner who's putting up money or you're putting up more money than the partner who's putting in sweat equity regardless be very clear upfront how the profit will be split. Another really important thing that you need to talk about in your agreement is the partnership termination. How will the partnership end. Usually it ends when the project is sold. So it's a project by project partnership. That's what I commonly see. Another thing that you need to talk about is what happens when one of the partners wants out of the partnership. How do they get bought out all of this needs to be very clearly outlined. And after you sign off on this written agreement you want an attorney to review it just to make sure that everything is actually legally binding and poorly executed because you know a piece of paper that has all these things on it but isn't actually legally binding or fully executed is a waste. Might as well not have anything in place anyway so each partner should understand that the purpose of the document is for everyone to have a formal infrastructure for that specific project but not to encourage legal action in the future. Right. We're just trying to protect ourselves as much as possible when partnering with anyone. Be realistic with expectations. Don't exaggerate numbers to get people to do a deal with you make people feel comfortable investing in a project with you by showing your competence in the deal or your confidence in the process. The first flip is all about doing it in a way that makes you want to do it again. There is a lot of flexibility when it comes to determining the profit split and determining how the partnership looks and I know that that's frustrating to some people . For me I like it because we can be creative and we can create a partnership that works for both parties some common ways that I've seen profit sharing happen is in addition to the one I mentioned earlier. Obviously is let's say that the person is really they just need funds. They're working with a coach who will walk them through the entire process and support them and they got the time to invest. They just need some money . So what's common in that instance is for the private money investor right that person who's putting up the private money . They are just putting up money. They are they are basically a silent partner . And the other person is managing everything they're managing the entire project they're managing the people they're managing the processes they're managing the problems they're doing it all. If they're beginners I typically see a 50 50 profit split as you gain more credibility. Incompetence. I would encourage you to change that to be more of a private money loan than a 50/50 partnership. Because you're bringing a lot more to the table and you can give people really great returns on their investment in a very short period of time even if it's just operating as a loan. I mean they can make 10 15 percent return. You can't. They can't do that anywhere else in such a short period of time . And when you do it that way there are some additional things to take into consideration namely protecting them and their investment in the property. So formally giving them a second lean or a first lean if they are providing all of the money the purchase and the renovation money if they're just providing the renovation money and you're getting a hard money loan for the purchase then they would take a second lean but always always always protect your investors no one. Protect your investors do this with integrity build those relationships and make a great name for yourself and people will come to you to invest in your deals. So some of you have been stuck because you feel like you've needed more information about partnerships and how they work . They are fluid they they change and that's beautiful because you can create exactly what you want and make it beneficial for all parties involved. So now that you've got this information go out and use it. I mean if it's applicable if you need a partner or one partner or are navigating that whole thing with a partner. Use this information above all communicate communicate communicate and be transparent with each other over communicating and being transparent will take you so far especially in a partnership kind of setting with someone. OK you guys. That's it for two days. Episode I hope that you have an amazing Thanksgiving week with your family and friends and that you give back if you can in whatever way possible and go out there flip houses like a girl leave people and places better than you find them and make it a great day. Bye y'all!