Partnerships, Wholesaling, and Finding Tenants

By James Dainard


"I'm in the process of completing my first cash flow property and I am getting ready to start thinking about tenants. How do you determine who will make a good tenant?" -Matt in Seattle

We highly recommend that new investors utilize a property management company. A well-run property management company will underwrite and screen your tenants as well as make sure the tenant is creditworthy, has a good rental history, and has documentable income. I've seen tenants who have done some crazy things to hide their history. What we tend to find is that high-risk tenants seek Out individual property owners rather than larger property management companies. I look at being a landlord as a business all on its own. There are many hazards associated with being a landlord and those hazards can make real estate investing an absolute nightmare. Until you completely understand the potential risks and how to mitigate these issues, utilizing a property management company can be extremely beneficial.

''What is wholesaling?" -Bonnie in Kirkland

Wholesaling is when a wholesaler obtains an assignable contract to purchase a property from the seller and sells this contract to another investor. The contract generally has a fee attached and when the contract is assigned and sold, the wholesaler receives the assignment fee and the seller is cashed out for the specified price of the property. There are several reasons why people wholesale. We've found it is common for people to wholesale in order to build capital so they are able purchase properties on their own. Some people find that that all they want to do is be wholesalers after a few successful opportunities.

"I'm thinking about partnering with someone, what is the best way to structure a partnership?" - Sharon in Puyallup

First off, partnerships can be wonderful or partnerships can be horrible. It really depends on who you are and who your partner is. I'm lucky to have had the same partner in our business for almost twelve years now. I've seen a lot of partnerships that have started out great and ended terribly. With that in mind it is very important that when you set up a partnership you don't do anything on a handshake. Everything should be documented in writing. You should have a partnership agreement, an LLC operating agreement, or an arrangement that includes all of the pertinent details. This way if a dispute were to arise, or if somebody were to die, get divorced, steal from the company, or become a non-active partner that you have already established a resolution with. I think more partnerships fail than succeed, so a partnership is definitely something I suggest treading lightly on. I also highly recommend consulting with an attorney on any partnership that you plan on venturing into. Itis money well spent to ensure that your partnership is set up with an enforceable contract if problems arise. Partnerships work well when everyone is making money, but when people aren't making money I have seen them go awry very quickly.

Co-Founder and Managing Principal at Heaton Dainard. As Managing Principal, he is responsible for the development and execution of corporate strategies, marketing, and property acquisitions. James has been actively investing in multifamily and single family units in the Puget Sound region for over ten years, and leads a dynamic team that exceeded sales volumes in 2015 of over $143 million with over 400 closed transactions. During this time he purchased over $50 million worth of investment properties and sold over $93 million in listed properties with an average market time of 25 days. His business acumen adds value to Heaton Dainard by providing investors with inventory and multiple exit strategies. James graduated from University of Washington's Foster School of Business with a focus in finance and marketing, and was recently recognized as Co-Founder of one of the Washington's Fastest Growing Private Companies in 2013, 2014, 2015, 2016, as well as one of Inc. 5000's fastest growing companies in America 2015 and 2016 .

REAPS is the oldest – and largest - Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you've never attended one of our meetings, just email our office at [email protected] and be our guest for free!"

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