Take the money and run? Finders fee or 10% of Mobile Home Park

13 Replies

Sup BP,

I came across a mobile home park in Eastern, MD and passed it along to my mentor. He wants to partner with a colleague to purchase it and offered me a finders fee of 2 points. I went along with him to check out the property with his partner asking questions and sharing thoughts that I thought were relevant without attempting to say too much. After walking the property, my mentor said that the other partner wanted to offer me a 10% stake of ownership in a minority/non-liable capacity but would add me to the LLC if I chose to, or just pay me the 2 point finders fee. They'll also let me manage the resident manager and likely the rehab of the property as well regardless of ownership stake for roughly 8% of the gross monthly rent - the resident manager fee which is free lot rent).

Question: Should I take the upfront money OR the ownership stake? 

Plan is to flip the property in two years, rehab/replace older units, rehab the duplex on site, and general landscaping. I have interests long term in commercial real estate and being apart of the business would help. I'm just not sure if it outweighs any potential risks of going into business with folks I've never seen operate in that capacity or what I could potentially do with the cash myself. I'd love your inputs/advice on pro/cons and being in the DC/MD/VA area, whats the best thing I could do with the $10k if you advise not to take the ownership stake. (10% ownership payout would be in the $25-30k+ range depending on value at sale).

@Michael Tucker I would take the 2% and let them figure it out. I don't think they are doing you any favors by "letting" you manage the manager. A property management company will charge 10%. It sounds like they want you to do most of the work for a 10% ownership. I assume you already have a busy life without new problems to pull you away from your main source of income.

Depends on how badly you need the cash. Sometimes the referral fee can be super clutch in tight times. Other times when things are greener it’s great to roll your fees into equity.

I agree about management, that’s a service that they would have to pay for regardless.

Originally posted by @Anthony Dooley :

@Michael Tucker I would take the 2% and let them figure it out. I don't think they are doing you any favors by "letting" you manage the manager. A property management company will charge 10%. It sounds like they want you to do most of the work for a 10% ownership. I assume you already have a busy life without new problems to pull you away from your main source of income.

Totally  that would be a ton of work for small dollars and you may get not as much as you think.. take the money !! 

The way you worded, it seems you’re getting paid 8% for the management function? You mentioned lot rent ad compensation? I assume you could rent that lot out? How much would you be paid for this management?
As long as you have a good operating agreement where you don’t short changed on the pay out from the 10%, I’d take it, unless you really need the money now.
Realize you’LLC likely pay 30/40% tax on your $10k with self employment tax.
If you get involved with the management, and these investors during this project, you’ll also learn a lot.

Personally, I would take the 10% stake. It is a good lesson, while getting paid to learn. On top of getting a much bigger pay out when it is sold, you will also get the management fee (how many lots is it?). 8% may be reasonable or it may be high for the size of the property. 10% is on the high end for fees and is generally for people with a couple small buildings with a couple/few doors each. I would gladly give up $10k for a good lesson and a bigger payout in a couple years, but maybe that is just me

@Bryan Devitt and @Wayne Brooks I haven't had any real experience other than converting my primary to a rental, so my gut says the ownership stake and learning from the management aspect would be the value added to me. In addition, I think it might help business credit-wise (not sure how much). They've estimated 8% for management, but plan to subtract the "expense" of the residential manager's lot rent (~$400/month) since he lives rent free to manage the community and collect checks. 

@Wayne Brooks can you expand on potential tax implications?

@jay and @Neal Collins and @Anthony Dooley I wasn't sure if I'd be allowed to stay involved with the project and since I haven't done any rehab/stabilization before I thought it would be a good experience to help manage the project so I planned to ask for the role to try my hand. I promise to reserve the right to quit, but I live closer than both of the other investors (even though its still over an hour away from me). 

Appreciate the responses and they seem just as down the middle as friends that I've asked in person!

if you really wanna be in the real estate game. Take their offer. If you can see yourself working with them. They are giving you a good deal because then you become an actual owner and doer. Not a talker or wanna be.  You are an owner/investor at that point 

@Michael Tucker this sounds like a great learning experience for you to be a partial owner and get paid to manage the property. If they are flipping it in two years, you will get your 10% back very soon and you will have two years of experience.  Even if it is a little extra work, it is only two years. Once you work with these guys, if it works out, they will likely partner with you on more deals in the future.

Great job finding this gem! 

@Michael Tucker It's a good position to be in. It sounds like you really want to be involved in the process, and since this is your 'mentor', it would be a great way to get some on-the-ground experience, which in my opinion is always the best. 

Are you being asked to put any money down to get the 10% ownership? If not, I would counter offer, that you would put money down equal to what they are (if you have) and split the ownership 1/3 each. If they are not willing to take you on as an equal partner, I would take the 2 points, and find a new mentor. Just make sure they put it in writing.

Good luck!

@Ryan Groene i see your point. Its almost like I would get the same experience, but if I have the stake then I can say I owned and managed the turn around of a property vice just managing it. Not sure if its worth leaving the 2 points on the table, but it would mean a lot to me to actually be a an "investor" since I've been looking for the right opportunity for some time. 

@Joe Splitrock there may be some other opportunities with them in the future and i think this would help!

@Yonah Weiss they made it pretty clear that they weren't looking into a three-way deal, so the 10% offer in itself was a surprise. if I take the stake, then i forego the points (essentially buying in with the 2pts I guess) I'm not being asked to put any money up, they just know I want the experience and I found the deal. I don't have the capital they have to put down even if I did counter. 

What does two points equate to?

Seems like a good oppurtunity to learn. Short term sacrfice for long term gaines. If you're strapped for cash maybe you can negotiate for them to give you half a point and still give you 10% ownership. 

Nothing wrong with earning stripes. Could lead to more partnerships in the future.