Advice Wanted - Partnering Basics

12 Replies

I have an off-market deal in Lakewood, CA that will be under contract shortly. I am looking to rehab and resell the deal myself, however after listening to the BP Podcasts I have decided to take the advice given quite often and look for someone experienced to partner with rather than seek out a hard money loan and work through the process by myself.

My question is this, during a partnership how would the novice rehabber, who is bringing in a deal, account for the cost of money that an experienced rehabber would be bringing in to fund the deal?

It all depends on the deal you structure with that partner... Also I might suggest locating a partner before you tie up a deal if  that's your only exit plan... 

It is understandably a case by case scenario but I am curious to see if I can get any help identifying some of the different possibilities before meeting the experienced rehabber I intend on offering the deal split with. I would be bringing in my time, possibly repair costs in addition to the deal itself in exchange for guidance and the purchase price.

While doing a deal with you may bring profit to the more experienced partner, your involvement will probably be more of a hindrance to an experienced investor.

If he is providing cash, time, and knowledge (while bearing the risk of a new investor), I would think you'll have to give up near 50% of the profit.

But as @Gregory Harris  points out... it will vary partner to partner.

Ask yourself this: If YOU were an experienced investor, who can obviously find his own deals... how would you value what your bringing to the table if you were in their shoes?

Do you have other alternative funding methods besides hard money?  If the deal is good and you don't want to handle the rehab, you can try to wholesale the deal.

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@Geni P.

An experienced rehabber doesn't just bring funds, they bring experience, knowledge, skills, a rolodex and ability to teach.  My recommendation is to not be greedy...you need a seasoned investor more than he/she needs you, so understand that they're bringing you an opportunity to learn processes and systems, both of which likely took the investor many years and cost him/her thousands of dollars to learn. A seasoned investor will seek 50% to 80% of the profits until you're able to take on a larger role in the process.  

Originally posted by @Geni P. :

It is understandably a case by case scenario but I am curious to see if I can get any help identifying some of the different possibilities before meeting the experienced rehabber I intend on offering the deal split with. I would be bringing in my time, possibly repair costs in addition to the deal itself in exchange for guidance and the purchase price.

I would let them set the general terms for the partnership.  It may be tweaked slightly based on the property - they may need a bigger percentage on a thinner deal.  Or they may be willing to offer more if you can bring a low work/low risk deal.

Also see what kind of deals they are interested in, size of property, price range, location etc.

I think you are going to be better off getting a smaller percentage on very successful deals, than a bigger percentage on less successful ones.

If you are in a position to roll your profits into future deals, that should help you quickly get a bump in your returns on the deals.

It seems you're seeking experience and funding and I would think the experience is worth more. In your position I would be willing to except what is offered, the education alone is worth the cost. When new to the process the experienced leadership may help avoid the opposite of profit.

Originally posted by @Josh Autery :

While doing a deal with you may bring profit to the more experienced partner, your involvement will probably be more of a hindrance to an experienced investor.

If he is providing cash, time, and knowledge (while bearing the risk of a new investor), I would think you'll have to give up near 50% of the profit.

But as @Gregory Harris  points out... it will vary partner to partner.

Ask yourself this: If YOU were an experienced investor, who can obviously find his own deals... how would you value what your bringing to the table if you were in their shoes?

I will, undoubtedly, be a hindrance during the first few deals starting out as all beginners are but I have heard over and over again that this is a relationship based business and over time I will become as much of an asset to the experienced investor as they are to me. Or at least those are my intentions.

I have no problem giving up 50% of the profits or more if need be because I agree wholeheartedly with the saying, that "50% of something is much more than 50% of nothing," especially when I would be getting so much in return.

If I were an experienced investor, the only value I would see being brought to the table, aside from profits, would be the potential business relationship moving forward I guess and I can start to see how much more this begins to be case by case.

Originally posted by @Adrian Chu :

Do you have other alternative funding methods besides hard money?  If the deal is good and you don't want to handle the rehab, you can try to wholesale the deal.

 As of now hard money would be my initial funding method but partnering would be ideal for me starting out. I also have a few private money prospects who I think may possibly be interested in funding the deal but I am still leaning toward partnering out of the gate to build the knowledge and experience base.

I would only attempt to wholesale as a last resort because I have my mind set on becoming a rehabber.

How does the math play out in my scenario? Does the cost of the partners money come out of their profits or mine?

Originally posted by @Geni P. :

How does the math play out in my scenario? Does the cost of the partners money come out of their profits or mine?

 That all depends on what you agree to.  Some partners putting up the money may just agree to taking a cut of the profits or may ask for money on their money and a cut of the profits.  As other people said, its often difficult to partner with someone who you've never worked with as the money lender runs all the risk whereas you potentially run zero.  If honest, thats why I got together with a group of investors, learned their systems and it opened me up to 50/50 partnerships but without me using any of my money to fund the deals.  Now I do 50/50 deals and use private money that we pay back with a little percentage on top that comes out of the overall profits before we split it.

You could bring me a deal that has a potential profit of $50k+ and i would rather pass. An inexperienced investor with no money in the deal and no construction experience would have to pay me to do a deal with them. There just isnt enough in it for me. you have to look at it this way:

You- bring a deal profit 50k and want 50% = 25k and takes 3 months and I put up 100k, manage the project, assume all loses if any. You put up 0 with no help just questions.

Wholesaler #2- brings 50k profit, i over pay 10k and sales less 5k then i thought,  i still make 35k. no questions no hassles.

Solution: (this is how i got started) Bring an investor a deal and ask for 3% on the back end. You offer to become their right hand man, you show up to the property more then they do, present at every inspection, pick up material from stores, anything that they could think they need you offer. you do this 2-3 times things should get repetitive take that knowledge and go out and try your own deal.

Win-Win. i get more working capital when i purchase and if the property sales for less then what was expected im not the only one that's taking home a little less.

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