Partnership Structure (When you are bringing the deal)?

Question

I am curious about thoughts/experiences of structuring partnerships when you are bringing the deal. I've heard on the podcast various numbers thrown out and that it wouldn't be unheard of to expect a 50% stake in a deal that you don't personally invest any money in, but handle everything else.

- So what are your thoughts/what have you done?

- And how did you arrive at your percentage decision?

- What factors do you consider when deciding the percentage breakout?

-What else did you consider that I haven't brought up?

Thanks in advance.

Mike

Jonathan Godes · Answer

50/50 is a good starting point for the deals I have done. I don't know that the percentage is my biggest concern, but my downside protection is. Who covers the overages? What happens to my money if the reno goes 5 months over?

I wouldn't ask a partner who is finding the deal and doing the work to take less than 50% as I want them feeling EQUALLY as invested as me. Depending on the experience and our relationship though I usually ask for a preferred return and a personal guarantee.

Account Closed · Answer

If you are only bringing the deal but not financing or working on rehabbing you are due payment more like a bird dog fee. Otherwise I agree with the above comments.

Ron Yanuszewski · Answer

Yeah, You're right, With the terms given to me though, a little extra holding could hurt. I really just like the personal working relationship and NO DRAWS aspect. I figured I'd have to do hard money with-out of pocket $ anyway, just looking at it all before jumping. Good to know you're local. Thanks for the reply.

Ann Bellamy · Answer

@Ron Yanuszewski,

12.9% and 4 points is high in this market, even for a beginner flipper.  While you will still have to put cash in the deal, especially as a newbie, you shouldn't need to pay 4 points depending on the location and quality of the deal.   We do develop long term relationships with house flippers, and terms get better with more experience.  The issue with partnering is calculate out the percent of profit and then calculate out the hard money costs.  Usually hard money is cheaper than 50% of profit.  If it is not, you are doing deals that are way too thin.

Ron Yanuszewski · Answer

Just to clarify, taking RE licensing course.

Ron Yanuszewski · Answer

I'm currently battling this question internally right now. My situation is, I haven't been Involved In RE for 25 years and that was only assisting on flips, I'm getting 12.9% with 4 point offers from HML's with 25% down, though I have a credit score above 820. We combine for around 130K annually so maybe I should go conventional on the 1st one? My wife is very gun shy about using our money right now as we have 1 child graduating college next spring ($500mnth right now) and a junior in high school. I won't go into the whole story but we lost about 200K on a franchise deal, mostly due to a lawsuit from the state that the franchise left us out to dry, so you can understand her apprehension. (still kept the credit score). An average house in southern NH is around 300K, so even a small deal isn't so small. I feel I'd be better off with a 50/50 split as opposed to hard money. I'd rather hand over 25 to 30 grand to a private lender who I can have a personal (long term) relationship with rather than the HML with the huge money cost plus the 25% down. I have a commitment from the best ( Ethically and production wise) GC I've ever known to get me through my 1st flip, I'm starting a RE course this month to get a better feel for the whole process. I'm sure I'm not alone in that my 2 biggest concerns are how to fund and how to look for the property, Too many web sites to sign up for all. RE has been a hobby for a while, I'm very confident In my ability to pick the right location for a smooth finish, and the type of home to purchase. Sorry to high jack the thread, any advice would be great, even if it shut up and do something. PS I plan on full time flipping and buy & hold after a few under my belt. Thank you. Ron.

Jay Raught · Answer

@Michael Glunk we use the 50/50 method.

Daniel Hyman · Answer

@Michael Glunk Its not unheard of even at higher sales prices. It boils down to what each partner is bringing to the table in terms of experience, time, money, and other resources.

Partnership Structure (When you are bringing the deal)?

Most Popular Reply