Should I keep my partners, or go it alone? (credit, lend, fees)
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I started an LLC in January of this year with my brother in law and his brother (my brother in law owns his own construction business. His brother works another job but helps him in his off hours). We do house rehab (house flipping, basically). We have come close to buying homes, but I'm running into some problems, some due to my partners.
One issue is funding. The brother said he'd contribute money from a line of credit on his house. He told us he'd have 25,000 to contribute, but when we went to put in an offer on a house yesterday, he balked and said he could only spare 15,000, wanting to "save" the rest for closing costs. We lost the house.
Another issue is their motivation. I've done 6 months of work getting this business going but when I call the guys to check out the houses I find, it takes them a day or two to even look at the homes and then more prodding to get estimates of costs to fix the homes. The deal between us was that I would do all the paperwork related to the business, find the homes, deal with the contacts (real estate agents, loan people, etc) and theirs is to check out the houses, get estimates, then if we get the house, fix it up. I'm finding it tough to get them to understand you can't take your time in this business. You lose houses that way.
Lastly, they seem to make up their own rules. We discussed putting the profits from any homes back into the business, except for a small percentage of profit for ourselves. Now they are saying they want to keep all the profit instead. We can't afford to do that if we are going to stay in business. It seems they decide these things then I have to battle with them to have my input heard.
My brother in law does excellent work and that is why I started the business with him. He wanted to bring his brother into the business against my objections and now he listens to his brother for every decision. It's getting very frustrating to run this business when I have to deal with their issues.
My question: Would it be smarter for me to keep going with them as partners and maintain the business, or quit and go it alone? If I went on my own, I would hire them to do the work in any home I find. My only issue is funding. I don't have any resources. Not enough equity in my house to borrow against, only a small savings, and I could probably get a loan (I have good credit) but I don't have cash for closing costs. If I stayed with them, the brother has money we could use and the risks of the business are spread out to three of us, instead of being all on me.
Also, if I go it alone, should I keep the LLC or just work as an individual?
I really appreciate any input on how I could approach this problem. Thanks!
First of all I admire our entrepreneurial enthusiasm. But that's where it ends. Starting a new construction business? Flipping houses? I had to check the date of this post to make sure I was not responding to a 2003 post. You have got to be kidding us right?
Have ya heard? America is in the greatest depression since 1928. The economy has lost more jobs last year then in any year since WW2, payroll has dropped to it's lowest level since the great depression, the construction industry has been decimated....I know this personally, factory output has shrunk to it's lowest in our history, once the most powerful companies on earth....companies (GM and Ford) who spelled true American might are dead in the water and have drowned, more then a hundred trillion dollars in real estate equity is lost forever, over a trillion dollars in lost retirement nest eggs gone...poof.......bla bla bla....
Banks no longer lend construction money. They make 81% of their profits from risk free junk fees so why lend risky money anymore? This means you will be playing with your own money. So what happens when you complete a property? Who's going to buy it? There are no home buyers. The few there are happen to be educated enough to know about all the home auctions, Sheriff sales, foreclosure sales.......etc. and the discounts on homes available. So who is going to buy your house for top retail dollar?
You don't know me. My advice is expert but to a stranger my word is worth squat. So if you listen to your govt or what the NAR says, go ahead and lose your shirt. If you do anything wrong, DO NOT GO AT IT WITH PARTNERS. You do know what new business failure rate is don't you? Double that for partner businesses. Don't invest anything you can't afford to lose in this venture because you will lose it.
Well, thanks for your input, I think. I live in Pittsburgh where the economy really hasn't affected the housing market. Houses are selling here as if it was 2003. And people are buying, in droves. I guess you have to know Pittsburgh to understand. The home prices never hit a bubble, they stayed steady. The competition to flip homes would not be so strong here if Pittsburgh was like the rest of the country. I've seen several homes snapped up by investors before I could even get a bid in.
But I do appreciate your response. I know this probably would not be the smartest business to have in another part of the country.
If I were you, before I put a nickel into a flip I'd sit down the brothers and have a word with them on how a business has to run.. And if they are not onboard with you tell them goodbye....
Let me guess, you have an "LLC" but you don't have an operating agreement or any kind of written agreement with the brothers. The business doesn't have a bank account with anything significant in it and nobody has actually contributed anything (cash, tools, property, etc.) So what you probably have is a piece of paper that says you registered an LLC with your secretary of state. But nothing that confirms your agreement. You don't have a business, you have an idea. And there's nothing wrong with that. But you're outnumbered two to one in the management of the business, and it doesn't sound like any of the three of you have enough money to make this work.
If all the "money" partner has to contribute is $15,000, how are you going to pay for the work that will have to be done on the homes? Who's going to be responsible to pay the mortgage in the months that may go by between the time you buy and the time you sell? And since you're an undercapitalized LLC, your loans are going to require that someone is personally liable. I agree with Houston, before you make any commitments I'd sit down with your partners, come to an agreement about how things will be run, who will pay what, who will do what, who gets paid what out of the proceeds, and then write it down
Let me guess, you have an "LLC" but you don't have an operating agreement or any kind of written agreement with the brothers. The business doesn't have a bank account with anything significant in it and nobody has actually contributed anything (cash, tools, property, etc.) So what you probably have is a piece of paper that says you registered an LLC with your secretary of state. But nothing that confirms your agreement. You don't have a business, you have an idea. And there's nothing wrong with that. But you're outnumbered two to one in the management of the business, and it doesn't sound like any of the three of you have enough money to make this work.
If all the "money" partner has to contribute is $15,000, how are you going to pay for the work that will have to be done on the homes? Who's going to be responsible to pay the mortgage in the months that may go by between the time you buy and the time you sell? And since you're an undercapitalized LLC, your loans are going to require that someone is personally liable. I agree with Houston, before you make any commitments I'd sit down with your partners, come to an agreement about how things will be run, who will pay what, who will do what, who gets paid what out of the proceeds, and then write it down
Actually, we not only have the LLC paperwork, we have an operating agreement and a business plan. We also have the bank account. The business itself is not my issue, it's dealing with the personalities involved. Before we started all this, we agreed on the roles for the partners, but there was no way to agree on how people would interact and personality issues. That is why I asked for input on how to deal with the situation my partners have created.
And my partners already have a construction business so all the tools, credit with Home improvement stores, trucks etc. are already set up. Money to deal with those costs has already been decided.
Money, of course, is always an issue. We did not go into this with a good plan on how to handle our needs to start the process. But it's something I'm working on right now. It's not the main issue I'm dealing with.
I agree that we do need to sit down and hammer all of this out. It seems to be the best option. But I'm thinking that if they can't deal with it, I may have to do this on my own.
Going into business with family is never a good idea... especially with little capital.
I think Houston3 gave you the best advice. Talking things over with family is always a good idea! =)
Good luck!
I think Houston3 did give me great advice. I was not seeing this clearly and it helps to get input when you know you aren't thinking through it well.
Thanks!
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. I live in Pittsburgh where the economy really hasn't affected the housing market. Houses are selling here as if it was 2003. And people are buying, in droves. I guess you have to know Pittsburgh to understand. The home prices never hit a bubble, they stayed steady. The competition to flip homes would not be so strong here if Pittsburgh was like the rest of the country. I've seen several homes snapped up by investors before I could even get a bid in.
