BiggerPockets

It sounds ridiculous I know, but I'm dead serious. I know almost nothing about real estate, I live in the only home I've ever bought and before that the only property I've ever rented.

But I know business, and I can write copy that sells. The key to both is knowing what service clients find to be of value at what price point.

So I'm cutting out the BS and using the best research strategy I know. Asking. If you had three wishes that could be granted on your next deal what would they be? Other than funding your deal, what would I have to do to be worth 30% of your profits?

If I brought you a motivated, seller would that be enough? How about if I could get you a buyer in a week? Would you shell out if I could cut your rehabbing costs by 10 percent? Twenty?

Thanks,
Will

Leverage.

If contracting out work for 30% of your profit allowed you to close twice as many deals it is a no brainer.

What % of their profit do rehabbers give construction crews? I'm sure it's not insignificant. But it is money well spent. It gets the job done faster and better than the rehabber could do it themselves.

No one is good at everything, and the things we are least skilled at we usually take the longest to do, and enjoy doing the least. By partnering with people who are strong where we are weak we can accomplish so much more than we could alone.

I was intentionally creating a headline that had "nothing" gut reaction, so I'll put this another way.

Another investor, one you haven't worked with personally but you've heard good things about, comes to you offering a joint venture where all profits will be split 70/30. What is he bringing to the table that makes you want to say yes to his proposal?

You eliminated funding, which is the real answer to this question.

Rehabbing is on the order of two thirds labor and one third materials. Rehabbing is only a fraction of the overall deal. The rule of thumb for rehabbing is that purchase plus rehab must be under 70% of ARV. The ratio between purchase and rehab varies widely. But for deals I've done its between 12% and 20% of the purchase plus rehab total. So, 20% savings on the rehab would, at best, amount to 3% of ARV. Would I give up 30% of the deal's profit for a 20% discount on the rehab expense? No.

Wholesales here typically add about $4K onto a $60K deal. That's under 7% of the deal, under 3% of ARV. To me, that's the hardest part, the part I do the least well.

The usual split for a money partner is 50/50. So, funding is worth half the deal. You've eliminated that half, and you want 60% of what remains.

I'll turn the question around and ask what you can do that would earn you that 60%?

Fortune favors the bold, the honest, and functional madmen. I might be all three.

Pretend like this isn't a sales pitch. It isn't. I'm not going to turn around and ask you for 30% if you name a service.

I don't really want 30% of your deal (that's a bald faced lie I'll take it the second you offer) and I'm certainly not going to ask for it unless I can offer a service that gives value.

At the moment I can't. I don't know enough about your wants or the needs of your business. The fastest way I know to learn is to ask. You all know this field so being upfront keeps me from looking foolish.

If there was service you'd pay that kind of money for then most of you would happily a monthly flat rate. Especially after I gave my services away to five of you and got excellent reviews. If I can't give that value I'm not going to ask for anything. Once I can give value I'll sell it for less and you'll be my customer for life.

Mike, I've got to say your post made me smile. I heard you, but you are missing my point. I know their is nothing I can do today to be worth 30% of a deal. I know there is probably nothing I can do in six months to be worth 30% of a deal.

This is more in the way of a goal setting exercise. If an experienced investor found some skill worth that much then you can damn well bet I'm going to bust my butt to learn that skill.

I don't want thirty percent of a deal. I want to know what's worth thirty percent of the deal. And look what I've gained buy asking.

I got a breakdown of what an experienced investor thought reasonable in rehab costs. Yes he would of answered that specific question had I asked it, but I didn't know to ask it.

I understand an experienced investor can do everything themselves. They've already done it. I'm trying to learn. To tackle the big problems, the ones that really suck, first.

If someone will tell me what they are I'll read every damn thing I can about them, ask around how people deal with them. Then ask someone experienced for the privilege of doing the the part they hate for them so I can get really good at it.

Once I'm to that point I'll ask around and see what others are willing to pay for me doing it on their deals (I get it won't be that much I netted $3.32 for my first one hundred hours of work in IM and now I'm twenty three, drive a lexus and have no mortgage).

It's my action plan to my first deal
-Learn the crap bits
-Get really good at the crap bits outsourcing them for free from the experienced investors.
-Offer to outsource the crap bits from really experienced investor for some small amount of money (because I know myself and nothing motivates me like getting paid for my work)
-While working their crap bits have the amazing opportunity to be on the inside of actual deals while actually making some money (or magic green motivation paper) and not risking everything I've worked really hard for before I can legitimately say I can do this.
-Then, when I feel ready go for my first deal

I'm asking where the trenches are. So I can wade through them.

William, not to break your balls here but you're the one who's missing the point. Jon and Mike gave it to you in black and white: the margins just don't work if someone else is getting 30% of the deal without providing any financing. Any way you try to spin it, it won't matter, an experienced investor is not going to give you a 30% cut. The ideas you suggested don't even come close to earning that much. Sorry, but that just isn't how RE works. You're going to have to either come up with your own cash to do some deals, or start out bird-dogging/wholesaling to experienced investors. But be aware that your cut will be less than 10% in most cases

I did read it but honestly successful investors are busy people. They will get kind of annoyed if you keep inundating them with questions and it won't be worth it to them-they could get a contractor or laborer to do whatever you're doing for cheap and not have to deal with explaining themself every step of the way. I really can only see that working if you happen to have a close friend who is an investor. Otherwise, they'll get tired of being bothered.

Instead, join an REIA and do some reading on here and maybe try to start wholesaling deals - it's a good way to learn the biz and get started without requiring a lot of capital. But it doesn't work in all areas.

If you're trying to figure out what 30% of the profits are worth, consider that I do about 25 flips a year without spending much time at all on the day-to-day aspects of my business (other than setting strategy and some other longer-term tasks); this means that I hire out nearly all the work I need done to keep my business going, day-to-day.

The total I pay my employees is about 25% of my net profits.

Therefore, I can essentially hire out 95% of the work needed to run my business day-to-day for 25% of the profits.

So, I'm not sure there is anything I would pay 30% for, unless you could do everything my employees were currently doing, PLUS generate additional profit for the business at no additional overhead to me personally.

And if you could do that, I'd be coming to YOU for advice... :)

I kindly suggest you revisit how to read an income statement. I think I understand what you mean here, but you have butchered some important terminology.

-K

I would pay another experienced investor 30% if they brought a qualified buyer to the table and handled the entire sales transaction so all I had to do is show up and sign.

I would knock 30% of my purchase price to someone who bought several homes from me (care to buy some?)

But I wouldn't pay you anything as you have not demonstrated any skills of value yet - and if you approached me - and you had the skills - yet you never answered the questions I asked of you directly - I wouldn't pay you anything either.

But if an experienced investor who wasn't annoying to work with brought a buyer to the table and all I had to do was sign and walk - I would pay 30% for that.