What should I charge for an Acquisitions fee?

Question

Goodmorning BP fam!

I need your help trying to figure out a fair acquisitions cost for a joint venture deal.

I’m currently in contract with two family friends on a property in my home town. Using none of my own capital but will be the boots on the ground from start to finish. I’ve found the property, negotiated the deal, I’ll be getting bids, managing sub contractors, pulling permits, and finding the tenants.

I know each deal is different but what is a good rule of thumb to charge for the services I’m providing?

Bill F. · Answer

Everyone is saying 1-2%, but that is for a syndicated deal, where the GP fronts the expenses out of their own pocket such as PPM, Phase I, costs to inspect the asset...

I don't see any of that in this deal, so I'd say the proper acquisition fee in this case is 0%.

If you bring no funds to the table and are getting ownership  through sweat equity,  you earn that equity by doing the things you described: finding the deal, overseeing the rehab, ect.

Brenden Mitchum · Answer

Hey @Gino Gonzales

I've seen 1% of acquisition price as the general rule of thumb.

Congrats on the deal and keep up that hustle, man!

Feel free to reach out anytime if you have other questions or just want to chat!

Roni E. · Answer

If this is a multifamily deal 1 to 2% is what folks charge for an acquisition fee. I would say if this is your first deal and family friends waive the acquisition fee so you can build a track record.

Bill F. · Answer

Well in that case, this isn't a joint venture at all, so ignore my previous statement.

After looking over the things you said you'll be doing, I wouldn't roll all of them into one fee, because they cross lines of functions.

"found the property, negotiated the deal": sounds like a finders fee is what you want.

"I’ll be getting bids, managing sub contractors, pulling permits" That ventures into general contractor/operations territory.

"finding the tenants." this is an agent/PM function that is usually done of the basis of rent. ie. you place the tenant in unit 1 and get paid one months of rent. Since it seems you'll be carrying out the owner's wishes, I'd walk away from the % fee mindset and move to the flat fee structure, because it is easier to understand and will most likely turn out better for you.

rough swag: $3-5k finders fee, hourly wage at $15-30/hr to manage the renovations, one month's rent to place a tenant.

Best of luck

Gino Gonzales · Answer

@Kenneth Garrett the asset is a SFR and I’m not receiving any equity. Only the acquisitions cost up to the point of me placing the tenant in the property once all rehab is complete. Would this still fall into the 1-3% rule? I was thinking 5k so 1% of this property is $3,800. So I’m right in that range.

Lillie MAnon · Answer

@Gino Gonzales I would encourage you to be careful riding the fine line or joint venture and syndication. What role will they play? Do they have any decision-making power or involvement in the process?

Different attorneys will tell you different things, which is truly a shame, but if your partners are completely silent and are expecting a return, then you are walking on the line of a syndication with comes with additional sec regulations.

Have you promised them a guaranteed return? Have you educated them on the risks? Do they understand that they could lose their money? Things to consider when working with money partners because god forbid things go south, you want to be able to say that you did everything right so there is no recourse to you. I’m sure you are acting with the utmost integrity but stuff happens...

Gino Gonzales · Answer

@Bill F. Thankyou for the well thought out response. Makes complete since to break it down.

Kim Lisa Taylor · Answer

@Bill F. is right on with what I’ve seen in JV type deals. You earn a share of the profits with your sweat equity; not an acquisition fee.

However, your investors need to be actively involved in generating their own profits for it to be a JV. If they’re not, you may be selling securities and will have to follow securities laws. The impact of doing so can be mitigated if all investors are accredited, but securities compliance could still be required.

Evan Polaski · Answer

@Gino Gonzales  The more I think about it, the more you are acting as a realtor, construction manager/GC and leasing agent.  Standard fees for that are 6% to a realtor, if you are representing buyer and seller, 3% if only one side.  10-15% of total construction cost is pretty standard for a GC in my market.  One month's rent is the standard leasing commission.

Kenneth Garrett · Answer

@Gino Gonzales

I think your time and effort is worth 3% at least in this case.  You didn’t mention the amount of rehab that needed to be done.  If the rehab was $40,000 that’s worth 15% ($6000) of the project since it sounds your acting as the GC.  Plus the time to rent it and turn it over.

Good Luck.

What should I charge for an Acquisitions fee?

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