Advice from created partner relationships.

5 Replies

My goal in real estate is to purchase, rehab and sell in order to use profits for purchase, rehab and hold.  However, like probably most, financial is proving to be problematic.

I would love to structure a partnership deal where the financier took their profits from the profits of the project rather than in the form of an interest rate.

Can someone who has worked this type of agreement tell me about their experiences.  Is it possible to find this setup?  How did you find your partner?  What pitfalls do I need to look out for?  Etc.

Yes, its possible.  Sometimes called a "money partner".  Typical split seems to be 50/50.   You find the deal and do all the work, partner provides all the money, profits split 50/50.   This usually works out to be more expensive than just doing a hard money loan.  But might let you do a fix and flip with less of your own cash.

Originally posted by @Jon Holdman :

Yes, its possible.  Sometimes called a "money partner".  Typical split seems to be 50/50.   You find the deal and do all the work, partner provides all the money, profits split 50/50.   This usually works out to be more expensive than just doing a hard money loan.  But might let you do a fix and flip with less of your own cash.

Any advice as to what steps to find these money partners? Is it just networking with local REI groups or do I need to advertise etc? I know there probably isn't an easy answer to that but how have you seen it done in the past?

What we do is provide the cash and take a preferred return similar to interest and then split the profits on a agreed formula. In otherwords, we allocate a portion of the return as a cost of capital before we split. 

example -

$100,000 investment

we provide 100% of cash at say 10%

Property sells for $150,000 net at the end of 1 year.

Proceeds Pay out

Loan Repay $100,000

Interest Repay $10,000

Profit split of $40,000

30% to us

70% to you

Wow Nicolas, that split seems very benevolent.  Most Joint Venture or Money Partners such as yourself demand a 50/50 split plus their interest pref.  But hey...that's your business. Though it is noticeable in your scenario that no sales costs were unaccounted for.  Minor oversight.

Daniel........do some research to figure out what properties that have sold in your area in the last 18 months were flips.  Then get access to a title company website and look at transaction history of those flips and see how high they were leveraged.  If someone gave 100% of money or even did a second lien then pull the Deed of Trust and see who the beneficiary was.  Track that person down.  Introduce yourself and tell them what you are looking to do and why they should Joint Venture with you on your projects.

You find private investors by word of mouth.  If someone advertises, or responds to ads they are more likely than not a hard money lender.  That may work for you, though, so don't ignore that possibility.  Talk to everyone you know and everyone you meet about what you do.  A few will be interested.  A few of those will have money.  A few of those will want to invest with you.  Those are your private lenders.  It takes time and effort to find those folks and cultivate that relationship.