How much to pay for a joint effort investment

4 Replies

Hi folks, 

I started a joint investment plan with a party but didn't really think through terms much, now that I own a place and am spending money I'm thinking twice about the deal I made. Wanted to get your input for what kind of deal sounds fair to you to assess how I should proceed with my joint party in this effort. 

Say you have a close family or friend in another state where you know the market is good and you'd like to have them find you a place to invest in then find contractors to fix it and you would just be checking in on the job. How much is fair to pay them in terms of % of the flip profits or salary or otherwise. How would you structure a deal? You're providing all the capital, incurring all the investment risk, and providing all the spending accounts to get the job done. 

Assume the person is a trustworthy friend or family - but you've never done business with them and they have zero experience in real estate whatsoever. 

Say break it into: finding a house, finding materials to use, finding contractors, monitoring the contractors, paying the bills (with your credit card), cleaning up the place for listing on the market.

Now to add some personal details:

The person finds the house on the MLS through a website listing after looking around with various real estate agents for a few months. In addition you've offered to pay them for painting services because they good at painting. Then they finally do (after two months) find a contractor who seems good and knows where to get material and needs very little direction.

@Leland Smith how did you structure it? Some lenders (what you're doing) just want a fixed interest rate and reliable payments. I see private lenders going from 6%-14% and from 0-4 points. Are you in it for possible flip upside? As the only one with risk, I would expect you to take at least 50% of profits. As the only one with risk, maybe you set it up so that you have all of the ownership and you pay him contractor/PM wages for the work he does.

I would say that it doesn't matter how trustworthy they are if they have never done anything like this and are remote. They have no skin in the game and so little concern. Imagine the kid that drops an iPhone someone else bought for them. They don't care much. But imagine that kid that poured their allowance/chores/whatever into it... big difference in level of care :)

Bryan, I made the deal straight 50% net profits (after all exoenses). They are doing some painting work which I'm. Paying a reasonable rate for and will subtract 50% on backend (to keep the split even, although since they aren't paying debt I could be subtracting 100% from. Their share theoretically) . 

So thing is I might clear 60k and end up paying them as much as I do the actual contractors! 

As you've said they have zero skin in the game and so don't care as much. I already notice this when I went to inspect the place and noticed several issues with the window installation I wasn't happy about but they weren't even there and didn't bother to inspect the work. Also one of the contractors stepped on the tin roof and dented it but they don't know which one. 

They have been going to stores and getting materials, dealing with contractors daily and other tasks. 

But I guess I find 50/50 a bit much. Don't know. . . 

I see it as on the job training. And really there's no financial risk to your friend at all but as long as they're working hard their butt off to make up for your financial risk and ensuring that there is no time and money wasted and to ensure that both of you benefit from the deal in the end, then I would have structure it 75/25. It's your money and you should get more of it back. He/She is learning from the experience. Maybe the next deal after they have proven their worth, you can increase their share of the deal.

@Dennis 

@Dennis Canon , I actually told them for this project they would get 50% of net profits. But now that the place is probably gonna sell for a lot more I'm thinking I'm getting shafted here. Plus the fact they took so long to find a contractor and get started (2mo in and just now having a contractor start). They are in need of cash now though so I'm trying to figure out a way to pay them off early and get out of it. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.