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Peter Chester
  • Investor
  • Santa Cruz, CA
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How do quantify intangibles in a deal?

Peter Chester
  • Investor
  • Santa Cruz, CA
Posted Mar 28 2015, 11:07

Hi folks! @Shane Pearlmanand I are working on structuring a partnership for a commercial investment (We aren't sure yet if we'll invest in California, Minnesota, or Washington).

I have a short sale on my record so I likely can't participate in the note. Shane's also a much more experienced investor. I will be brining capital and will play a support role in setting up the deal and engaging in the long term oversight. But Shane's definitely the lead on this.

How should we think about our partnership arrangement?

We did some soul searching and identified the following factors in a deal but we don't have a great handle on quantifying them:

  • Cash - That’s a relatively easy thing to value. It is notable that it is also a highly risky thing to invest.
  • Mortgage - I can NOT get a mortgage at a reasonable rate and probably not at all for a commercial property. And if I did, I’d be at risk because I couldn’t refinance or 1031 for another 5 years. So I have to weigh that in when I look at my real estate expectations.
  • Experience - I am not super experienced with commercial real estate (or any real estate for that matter). If I was to enter into this myself, it would take a tremendous amount of time and would be a lot more risky. Shane would probably volunteer to help me review deals that I’m taking serious, but if I was rolling solo, I’d have a tremendous amount of work cut out for me. And honestly, there is a great benefit to me to be on the same team as Shane because he’s a hawk if he’s got skin in the game.
  • Effort - Shane works really hard on this even when I try to get him to slow down and pace himself. He's really passionate about it.
  • Team - Bringing the right team to the deal ensures that the deal has a high degree of success. Some of the opportunities we're looking at are in places where Shane's got an established team.
  • Investor Network - We probably won't go this route, but if we don’t have enough capital to make a deal, and Shane can pull on his investor network to pull in the difference, it may be worth a bump in the deal.
  • Deal Flow - Finding the deal itself is quite valuable.
  • Project Management - Who’s managing the project (upfront and once the project is rolling)
  • Work Support - This one is weird and I'm not even sure if it merits being called out. All the same, I'm throwing it in the mix. Shane and I are business partners. As Shane becomes busy handling phone calls for a deal, I attempt to take things off his plate.

Do we try and define a % value for each of these? Shane proposed that we just skip all this and he'll want some % and I can take it or leave it. How do you think about this when you set up a partnership?

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