What should I tell my Dad?

69 Replies

@Christian Walker

You could Get him to agree to a starting “contract” but in it, place a contingency to renegotiate x after x time after the project is started. Do so much work and be so good that it would be irrational and impossible for him not to re-negotiate at 50/50.

If losing you on the project means not finishing, I’m sure he’ll come to that conclusion.

Less percentage person means it makes it easier for that person to step away for a better offer, he should understand that.

family and business can be hard so if you do it —- put lots of “stop signs” in place for renegotiation and formal check ins down the road.

@Christian Walker

The best way to keep a good relationship with your family is to not do deals with them. I have done 2 deals with family and the only way I did them was because our rolls were very defined.

Deal #1

Dad- Me: My dad was pretty seasoned investor and I was 18. I didn’t make any decisions just worked like a dog. We were unequal partners and I was ok with that. I would rate it a 6/10. I gained some experience but had little control over the process and there was no exit strategy. I talked my dad into buying me out.

Deal #2

Brother and Me: I have been investing a long time. I told him that this is my project and if he could provide some capital and labor that would be great but I make all the choices. My brother is a very successful dude but I made it clear, “this is my project and I am the boss.” When push came to shove he understood the relationship and we made it work. I would rate it a 8/10 for a transaction. We both were paid well and so there really can’t be hard feelings.

My point is that doing deals together can be a negative in relationships as well. If you are losing money or didn’t plan for an unexpected cost, how would you or your dad react?

My family is very close. We get together, all 15 of us, every week. We talk a lot of real estate but mostly we are there to bounce ideas off of each other.

I’m split on this one. On one hand I get the entitled millennial argument posted above; one should help out their parents for free and atone for their childhood. On the other hand, this kid did not ask to be born. I have three kids of my own and realize that my job as a parent will never end. 

My parents had to help my grandparents on my father's side a couple years ago so I managed the buy and rehab of a rental property for them for no equity. The rehab took 5 months and I was there working alongside my handyman almost daily. I still property manage that property for free and cover costs as to shield my parents from the nightmares we all experience in real estate. I've told my folks I'll do another one for them anytime, and I know if they asked, another. But eventually watching them drink fine wine while I take tenant phone calls and refinish floors would be ridiculous.

I have several rentals of my own. When my kids get old enough I’ll gleam with pride when they want to get in the game. I’m sure the split won’t favor me, and that is okay. I knew when I had them I was responsible to help them. Also, by the time my kids are doing deals the old man will be wealthy. The kids are going to need to know how to eventually inherit or they’ll lose it.

Take the above in mind and proceed accordingly on this deal. Perhaps zero split early on, but as time goes on I’d let Dad know what is more fair.

@Christian Walker um ok, what is missing completely here is what he wants and needs. You said rentals to help when he loses his job. How much cash does he need? What is his risk tolerance? How much can he afford to lose? What are his other options? Is this primarily to help him or to help you? And perhaps most of all...what does he think is fair? START THERE.

You jumped all over someone who echoed your 50/50 statement saying you never said that...but that sure is what I read. If this is the quality of your communication you need to rethink and clarify everyone’s expectations.

The structure you are searching for sounds like it would wind up as a waterfall...all profits (preferred return) to the primary partner until you reach a certain point then a switch of percentages to 50/50 or what have you after that target is reached...but that is the least of the issues here

@Christian Walker the post about 50/50 wasn’t yours, I misread. My apologies.

I stand by my point about communication though...you haven’t given the necessary information so people can give good and ice and the way you are framing this whole thing raises a lot of issues.

@Jonathan R McLaughlin

Thanks for re-pointing that out.  This "very experienced investor" who is "Mays Business School at Texas A&M" has presented his case/situation.  I guess that's all he is willing to communicate on the situation....

@Jonathan R McLaughlin

Thank you for your response! Okay I’m going to try to hit all your points. He is losing his job because the refinery is closing down. He needs about $6000 per month to live comfortably. Which is roughly 7-9 properties to make that happen which is very doable in my area. He doesn’t really have other options beside trying to find a new job. This is primarily to help him reach that goal because I want him to achieve that without worrying. I would love for me and him to build the business together and both benefit from it but on my side I’m kinda getting the short end of the stick. Because I can go elsewhere to make that 50/50 happen (but I really don’t want to do that). What I’m really looking for is advice on how to pitch a 50/50 partnership together. I don’t want to mess up a relationship in the process too because I hear business and family is a very tight rope. Hope that covers most of your questions.

@Christian Walker hey glad you are engaging and respect for your desire to help, but you are killing me here....:)

What the heck do you mean by 50/50? Do you mean he is all the money and you all the work, do you both fund equally out of your own cash? Are you financing and who would do the down payment?

Not asking you to air your family secrets, just be clear what kind of partnership you are discussing, and what you bring to the table. We will be better able to help.

You mentioned his financial goal of 6k again, is that all in? Does he need it all to come from this? That will go a long way to figuring risk tolerance. Looking to build up rental cash flow or flip? What resources do YOU have financial and otherwise?

“Lots of knowledge”=exactly nothing. What do you mean?

@Christian Walker If you are such a hot shot with "a ton of knowledge" why can't you help your dad and partner with these other mysterious investors who are willing to take what seems to be a terrible deal for them, by giving up 50% of their equity.  You are being so vague, and evasive with other posters it makes me think you are shady, do you even know the legal intricacies of soliciting money from investors, if not read up unless you want a visit from the SEC.  Sorry to be so harsh but with what you've provided I'm skeptical.

Originally posted by @Christian Walker :

@Jonathan R McLaughlin

Yea like he funds the deals, that's all. I would find deal, manage renovations, rent out, and landlord. BRRR into more deals is the idea and start scaling up. Is a split of profits too much to ask? I feel like that is a fair deal. Because technically he'd only pay for the first one.

 By fund the deal, do you mean just the down payment or also pay for all of the renos?  I don't work with partners, but if I interpreted it correctly (and I may not have) and he is paying the down payment and reno costs and you are managing things, I wouldn't consider that a 50:50 split. He has all the risk and all the money invested.  If he is covering the down payment, you pay for the renos, that would be more equal though managing the rental would shift more of the profits to the person doing that.

Being able to buy enough rentals in 2 years to cash flow $6K per month is a big challenge depending on his savings.

Why not partner with him on one and show him how it is done. He can then do the rest on his own.

@Christian Walker ok that helps clarify. 50/50 is way too much given those circumstances. Thinking that’s in the ballpark is a big time error. He has ALL the risk to his money and credit, you have none. Whether he is putting up 20% or all the money is immaterial, he is on the hook for all of it.

Any equity at all is a good deal for you, maybe to buy in over time—which would help your dad.

@Christian Walker

You: “Dad, what do YOU think is fair?”

Dad: “______”

You: “done. Thank you for having continued confidence in me and helping make me the man/ woman I am today. I’m happy to do that split right now because you are family. I’m sure you remember my goals are lofty so once we’ve got you set up and financial secure we can always reevaluate our split. Does that seem reasonable to you?”

Dad: “where did you learn to negotiate like that?”

You: “from mom, she runs the show”

@Christian Walker

Are you trying to do some form of Brrrr? That isn't clear to me but I'm guessing that what you mean.

If you are good at doing brrrr and can truthfully say creat 20-30% equity profit increase and are running it I would say 50-50 of profit only after your father gets all capital back plus say 5-10% interest rate on money over the time it takes. if your managing the property fair compensation from that also LTR (7-10%) maybe

To avoid confusion I will give example

You buy 250k rehab 50k including the interest on your dads money over the couple months the rehab takes. ARV is 400K you can refi 75% LTV and get a loan of 300k your dad gets paid back his whole investment you both get 50/50 of equity 50k each.

Example two buy 275k rehab 75K ARV 400k

Refi 300K dad is still 50K in so you then split profit 50/50 dads equity is 75 yours is 25

I believe that’s probably the most fair way to do it. If you are as good as you say you could probably do the first example all day long and earn that 50% equity and help your dad out.

You made it sound like what you meant was dad puts up 100% buys place you get 50% equity for managing it. I don’t think/hope this isn’t what you meant but that’s what it sounded like.

@Christian Walker

Why not do both, find enough deals that you go 50/50 with your other partners and go whatever percentage your dad wants with his deals. Life is about way more than money. Plus in 5 years once you built an empire in real estate it won’t matter anyways. Take this from a guy who’s dad doesn’t take interest in what he does and doesn’t want to be involved any of my businesses. There’s lots of deals out there and it sounds like you have a good stream of deals as well as knowledge on how to put them together.

Don’t take yourself to seriously and love life!!

@Christian Walker

Am I the only person that sees this as a bad idea? I understand we all love REI and BRRRR is super popular but if I were about to lose my career and concerned about my financial future, borrowing upwards of a million dollars in debt with absolutely no safety blanket would be the last thing on my mind. What if there is a large repair or vacancy - without any other income stream or nest egg your father is going to be strapped and stressed.

Maybe your dad is sitting on a huge pile of cash, but then I’d question why he is concerned for his financial future. More info needed...

@Christian Walker

I am trying to put this as nicely as I possibly can. Larger real estate deals are very often made up of an investor (or group of investors) "money guy" and an operator. The money guy is typically silent and provides all cash, while the operator is responsible for literally every aspect of the deal. Often times these are structured as limited partnerships. I have seen dozens, maybe hundreds of deals structured this way. The operator generally gets lease bonuses, operating income bonuses, etc. that said, in my experience, the operator's share of equity has never once been higher than 8%. Obviously every deal is different and I don't claim to have seen every deal, but your proposal is out of market and if I were your dad, purely from a business perspective only, there is no way that I would ever entertain that deal.

@Christian Walker

Most of young people wants always 100% in business.

They think greedy.

They think they discovered the secret formula to be millionaires.

And they don’t listen. They ask others, as you did here, probably expecting the forum to tell you “hey, you are right”, or “hey why 50%? You should get 70% and your dad 30% because you do all the job”.

This is what it is at a certain age.

Young people search for confirmations, when they receive opinions, opinions that are far from what they think, they escape.

Which is what you are doing here, not even answering other investors when they disagree with you. I am not even sure that you are reading, or “listening”.

Now, I will tell you something that you don’t like:

Your value is close to zero. As anyone else coming to an investor asking for 50% to offer some services that can be bought much cheaper and without giving away equity.

You are investing in your city, or close to your city. Not even out of state that make things complicated.

Your father can find a Property Manager, a Good agent and good contractors by himself. If he does not want to do it, better for him to find another way to invest his money or another way to make money. That's it.

It’s going to cost him much less in %, much less in health and discussions with his son, and much less energies in negotiations.

If he go on his own, he will probably do some mistakes, but mistakes are part of the business.

In two years, when he will be without a job, he will have a job. His houses and his properties to manage. So he will even not need a manager.

You should do your business the way you want, with your own money, and if you really want to help your father do it for free and teach him your “secrets”.

And/if there is people ready to invest their money and give you 50% for you to do something that barely cost zero equity, some money and time, and 20% of commissions, well, there are a lot of folks that burned millions with business. Simply because they make wrong choices.

@Christian Walker

Currently in the process of doing a business deal with my father as well. My father always taught me that business is business. If both parties (you and your father) do not agree on the terms and conditions do not go through with it. There are other options like you said. Stick to what’s profitable.

@Casey Crites

Too many cooks in the kitchen. No matter how clear it is on paper someone will interpret differently which ultimately leads to a 2 against 1 situation and someone ends up disappointed/ frustrated / insert other negative adjective here. Avoid 3 partners or more unless you’re doing a syndication. 1 partner per deal with managing partner having final say is ideal.

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