How to Find Equity Partners

10 Replies

Hi everyone,

My partners and I are looking to find good equity partners. I have seen some posts on here about what % equity to offer the equity partners, but haven't come across a topic about finding good equity partners (besides people asking for them on here and not getting many responses). Can someone please tell us how to find good equity partners, how to convince them to work with us and how you structure the deals with them (i.e. do you have a JV company that you own together or do you just have an agreement that states what everyone is responsible for and what the split of the profits will be?)? We are finding great deals in San Diego and in Alabama to either fix and flip or buy and resell with owner financing for big returns. We have a good team and a good system ready to go, but without the cash we can't get the deals. Hard money is an option, but too expensive and they want us to have as much as 20% into it. We would like an equity partner that will put up the money for the purchase and the rehab, we will bring the deals, do all the work and sell it (with our agent). Is a 50/50 split of profits appropriate for a deal like that?

Thanks so much for your advice!

You need to be somewhere. I've raised money from folks I met at a Chamber of Commerce, a REIA, recommendations from friends, etc. Get out there, present yourself professionally -- get biz cards, a logo, a website,etc and start talking to folks. it's also a process.

Don't expect to have one meeting with someone and have them write a check right then. Having some skin (read cash) in the game besides finding the deal helps, especially if you have a limited track record.

Thanks Lee G. Good recommendations. I am newer to investing in this area, so I have been trying to network as much as possible. My partners are more experienced here, but we are a new company so I guess it will take time and lots of networking to find good equity partners or private money lenders. It is sort of a catch 22, it is hard to get experience in this market without cash, but it's hard to get the cash without the experience! Thanks again!

We are in a market that is difficult for experienced investors with verifiable successful track records to raise equity capital. It seems like you are wondering how to raise capital with little or none of your own money invested and no track record of success in your investment space. So you need to ask yourself: if you had $100,000 for investment would you invest it with someone with limited or no experience in that type of investment and with no "skin" in the game.

You also mention you and your partners. Since this implies at least three of you, why would you choose partners - or why would they choose partners - with no capital to invest? Partnerships work when each party has something to offer that the other party doesn't. In small scale real estate that's experience or money (some people say time but time without the other two is cheap and overrated). I have seen many people partner up for no reason other than it seems good to have a friend in the venture. This dilutes equity, leads to disputes and lessens any ability to actually close a transaction.

Although the above may seem harsh, it's better to get an honest opinion from a real player than the cheer leader nonsense from the gurus selling systems or from other limited experienced/limited success investors.

You also say that hard money is too expensive. Equity investors in these high risk ventures expect a return greater than the 14-18% hard money lenders charge. In fact if you were even luckly enough to attract the interest of equity capital, they would in all likelyhood require a preferred return before the "talent" received any return. The truth is that if the deals you are finding can't support hard money rates, they will not be attractive to outside equity capital, and they are probably not great deals at all.

Yea it's all about building relationships with people who potentially could be a joint venture partners. Many ways to do this, but it does take time. Like @Lee G. said, don't expect anyone to just cut a check first day/meeting.

I'd suggest building a track record with Hard money first, this sounds expensive but equity partners are usually always more expensive.

Don and Mike,

Thanks for your advice. I do appreciate the honesty and the time you spent on writing with advice. We are building a track record and experience in Montgomery, AL, but are having trouble breaking into the San Diego market (where we live). We went out of state because it is so much cheaper, but would like to eventually work here so we can keep a better eye on projects. We were wholesaling here to get started, but that has been really tough the last few months because investors are desperate for inventory and have been over paying for everything that hits the MLS. We are starting to get some leads with our other marketing, but it has been slow again because there are a lot of investors marketing for deals.

I completely understand your point about not wanting to invest in inexperience, especially when we have no skin in the game (other than time and sweat). I had been thinking that, like Mike said, we will have to go with hard money to build our experience, but the hard money lenders I've talked to want us to have up to 20% equity in the deal and in SD that is a good chunk of change. They suggested an equity partner to help us with that.

You are correct, there are 3 of us, none of which have a lot of $. We are a good team and all bring different things to the table that are good for the business (marketing, construction experience, management, limited deal experience), but unfortunately, $ isn't one of them.

We know that we will have to give up most of the profits with either hard money or equity partners and that is fine while we build capital and experience. The trouble is it seems that we need both because we don't have $. We have found some deals that would support the lending expenses, but without a bank account showing proof of funds (banks aren't accepting transactional funding POF), and without the POF from the hard money lender (we can't get that without a decent amount of $ in our accounts), we can't get them under contract. Would you mind sharing how you got started and went from novice to experienced investors? Did you have $ to start?

Thanks again for your time.

Russell

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Hey @Lee G. ,

Your experience sounds great. Can you give us a little more insight into your successes and how you presented yourself, your deals, etc? (I know this is a little late but I'm in a similar situation as the original person who posted this).

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