What Percentage Should I Give Financial Partner
Entrepreneur · Duluth, GA · Member since 2015 · 68 posts · 5 votes
What Percentage Should I Give Financial Partner
Most Popular Reply
Why don't you just borrow the money from him at an agreed upon interest rate?
As an equity partner, he'd be taking more risk, so you'd want to pay him more than if it were a straight loan.
59 Replies
- Investor · Bonita Springs, FL · Member since 2015 · 102 posts · 37 votes11y
If I like the numbers and knew the person running the project, had knowledge of DOM for the area etc etc etc then I would be more than happy with putting out 25k and receiving that plus 5k at the end of the deal. Seems a little steep to me but as an investor with the right knowledge of everything I would step into that type of deal any day of the week.
- Investor · Portland, OR · Member since 2014 · 354 posts · 149 votes11y
Property 1
$103,000 purchase price
$47,000 budget
$227,000 sales price
We cleared $60,000 in profit and split it 50/50. No brained deal for anyone with money. It was easy for me to look at it and feel like he was making too much, but in the end, it all comes down to the ideal of this: would you rather have 100% of nothing or 50% of everything. We were happy to get $30,000 on our first flip with zero money down! Investing partner was happy to get $30,000 for taking the risk on us.
Property 2
$185,000 purchase
$27,000 budget
$265,000 sales price.
This deal on its own is way to tight, but, we purchased sub2 and owner carry with $0 down and borrowed $25,000 for our budget. Paid 15% on it. Over 2 months.
With a a few thousand dollars holding costs, and a quick flip, we cleared $30,000. Not enough to cover HM or a JV project, but enough for the easy project and the deal we structured.
- Entrepreneur · Duluth, GA · Member since 2015 · 68 posts · 5 votes11y
Originally posted by @Michael Moikeha:
Property 1
$103,000 purchase price
$47,000 budget
$227,000 sales price
We cleared $60,000 in profit and split it 50/50. No brained deal for anyone with money. It was easy for me to look at it and feel like he was making too much, but in the end, it all comes down to the ideal of this: would you rather have 100% of nothing or 50% of everything. We were happy to get $30,000 on our first flip with zero money down! Investing partner was happy to get $30,000 for taking the risk on us.
Property 2
$185,000 purchase
$27,000 budget
$265,000 sales price.
This deal on its own is way to tight, but, we purchased sub2 and owner carry with $0 down and borrowed $25,000 for our budget. Paid 15% on it. Over 2 months.
With a a few thousand dollars holding costs, and a quick flip, we cleared $30,000. Not enough to cover HM or a JV project, but enough for the easy project and the deal we structured.
I like the way you're crafting your deals. How many rocks did you have to overturn before you landed each deal? Were they relatively close in proximity to each other? How much longer after the first deal closed did you begin your second property?
- Investor · Portland, OR · Member since 2014 · 354 posts · 149 votes11y
First flip was done while working full time and going to school full time, so my marketing was minimal. Shortly after this I quit my job and started going full time at real estates, upped my marketing, and in the next 6 months got 2 more flips. This is my first year, so they are not lining up back to back and 2 at a time as I will hopefully have soon, but it is picking up. I am now doing 4000 letters a month and looking to add other aspects to my marketing.
- Rental Property Investor · Winslow, ME · Member since 2008 · 826 posts · 281 votes11y
If this has already been suggested, excuse me please.
How about a loan, but for a guaranteed minimum amount of time. Let's say 10% compounded monthly, and guaranteed for 6 months. He now has some "upside potential" coupled with a guaranteed decent return at bare minimum.
- Investor · Albany, NY · Member since 2015 · 7 posts · 1 vote11y
If this is an investor who regularly does this, then you want to structure a deal that's fair, will compensate you well for your risk, and build a longer term relationship with the investor. If you can make a person 20%-50% return on their money within a twelve month period, they will be anxiously waiting to hear from you again. I might be interested in investing this deal. Let me know....
- Entrepreneur · Duluth, GA · Member since 2015 · 68 posts · 5 votes11y
Originally posted by @Michael Moikeha:
First flip was done while working full time and going to school full time, so my marketing was minimal. Shortly after this I quit my job and started going full time at real estates, upped my marketing, and in the next 6 months got 2 more flips. This is my first year, so they are not lining up back to back and 2 at a time as I will hopefully have soon, but it is picking up. I am now doing 4000 letters a month and looking to add other aspects to my marketing.
Let's stay in touch and help each other where we can. Thanks for your input.
- Entrepreneur · Duluth, GA · Member since 2015 · 68 posts · 5 votes11y
Originally posted by @Parker Detweiler:
If I like the numbers and knew the person running the project, had knowledge of DOM for the area etc etc etc then I would be more than happy with putting out 25k and receiving that plus 5k at the end of the deal. Seems a little steep to me but as an investor with the right knowledge of everything I would step into that type of deal any day of the week.
The cash-on-cash numbers for a $5k return on $25k looks like this:
2 months = 120%
3 months = 80%
4 months = 60% - Entrepreneur · Duluth, GA · Member since 2015 · 68 posts · 5 votes11y
Originally posted by @Kenneth LaVoie:
If this has already been suggested, excuse me please.
How about a loan, but for a guaranteed minimum amount of time. Let's say 10% compounded monthly, and guaranteed for 6 months. He now has some "upside potential" coupled with a guaranteed decent return at bare minimum.
Good suggestion. It's similar to some other deals i have structured with a relative. With a pure investor I would tend to want to do the deal differently in order to maintain access to that pool of capital.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Bobby Holley here in Oregon its very tough for deals @Michael Moikeha as Michael alludes to its not Georgia were I could fly into town and snag 3 nice deals in a weekend LOL ( cash in pocket of course)
First off NO hard money lender is going to go into second position on your proposed deal so forget about that.. not sure why no one has mentioned that yet.
And if you don't give a capital partner enough juice its hardly worth the effort I would never do this deal on a % basis for only 3 months.. make a whopping 1,500 bucks or so who cares about the APR your a one and done investor not worth the thinking about it and the due diligence. .. given the risk that you may not really know what your doing and I could get wiped out completely since I am in a junior position...
This is a credit card, friends and family deal, if you want cheap money... Not something your going to run by semi professional or lenders that do this for a living I would not even give this 2 seconds of thinking this is a real deal .. far to risky and not enough return.
If you can't scrap a mere 25k together you may want to rethink what your doing... And or as others have stated just wholesale the deal.... REmember in your area deals are like street cars they are everywhere LOL.. you don't bring that much to the table with a deal.
and if you want to scale up you need to give your capital partner a reason to partner with you... I see this so many times its really pretty funny... you got no money and you want to dictate the terms because you happen to tie up ONE deal.... OK that's the other side of the coin from some who is a capital partner for a living LOL.. that's who I personally look at it... Hope that helps giving you both sides.. not just those that jump on your side of the band wagon thinking the greedy capital partner is making too much money. when in fact they are the only ONE's risking any money. your just risking time.
- Entrepreneur · Duluth, GA · Member since 2015 · 68 posts · 5 votes11y
Originally posted by @Bill Teague:
If this is an investor who regularly does this, then you want to structure a deal that's fair, will compensate you well for your risk, and build a longer term relationship with the investor. If you can make a person 20%-50% return on their money within a twelve month period, they will be anxiously waiting to hear from you again. I might be interested in investing this deal. Let me know....
This investor usually reinvests his cash in his own projects in the Atlanta area. He is a friend of my real estate agent who introduced the deal to him. We have yet to come to terms and I won't meet him until tomorrow when we go to look at the house. He has $100k liquid. The deal could go anywhere from a $25k - $70k investment depending on the level of financing I get from a lender. A portfolio lender recently approved me for an 80% LTV but I don't have the 20% downpayment. So, that may come from an investor or from a cash out refi of my current home. I also project about $25k in rehab costs, closing costs, carrying costs. I have a relationship with a general contractor which could save me significantly on the rehab costs but have not gotten an estimate from him yet.
All that to say, I am all about developing partnerships where everybody brings something to the table and each party walks away with a smile.
Give me an idea of what you have done and what types of deals make you comfortable. I'd be glad to entertain your thoughts.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
I have done just that I bought 54 homes in Atlanta and resold them to a hedge fund... I was merely giving you the other side of the coin.. on how a capital partner would view your offer... When its your opinion that your bringing all the value when in fact the capital partner is taking all the risk... And many folks take your stand or point of view on this and basically never get anything done because they are too focused on the capital partner making too much money and they don't think they deserve it...
So if that's the case then one should just get their own capital together.. And not even go looking for that... 25k these days simply is not a lot of money in the grand scheme of real estate.
And Oregon is dog tough for deals.. there Is no questioning that. I could go to the monthly auctions In the 7 Atlanta counties and pick up more properties in one day than most can do in a year in Oregon. In fact one of the largest foreclosure buyers in ORegon followed me to Atlanta and they bought over 75 homes... LOL . its the reason I do this in 12 states.. Portland Sucks for this kind of business on a big scale and something you can count on.. Profits can be nice.. but many do these deals and on a 250k deal lucky to make 10k I know I had a sizable HML company here for 10 years I saw the HUDS.. was not uncommon actually for investors to write us a check when they sold.. given the age of the homes and competition...
The area of Atlanta of course that is hot is Brookhaven I have not pulled the trigger there yet but have been looking at deals there.
I only build new construction here in Oregon and a few remodels..
Sorry you took my post so personally.... Put your lender hat on ...its why you play hell trying to get any loan under 50k its just not worth all the brain drain for so little return...
And its why these deals are best done within family and direct contacts or friends..
wish you the best on it..
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes11y
Reality calling. They want their shirt back!
Just making sure your profit estimate takes into account 10% sales expenses and closing costs? It's often forgotten. Didn't want you counting too many chickens too early! Cheers!
- 11yGino BarbaroPro MemberRental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
Hi bobby
Have you asked your investor what he expects as a return? Let him be the first to ask for a number and then take it from there. If this is your first deal, you may have to give up a bit more to the investor, but of you have a track record then you can negotiate a smaller amount. Have you asked if they want debt or equity?
Gino
- Entrepreneur · Duluth, GA · Member since 2015 · 68 posts · 5 votes11y
Originally posted by @Jay Hinrichs:
I have done just that I bought 54 homes in Atlanta and resold them to a hedge fund... I was merely giving you the other side of the coin.. on how a capital partner would view your offer... When its your opinion that your bringing all the value when in fact the capital partner is taking all the risk... And many folks take your stand or point of view on this and basically never get anything done because they are too focused on the capital partner making too much money and they don't think they deserve it...
So if that's the case then one should just get their own capital together.. And not even go looking for that... 25k these days simply is not a lot of money in the grand scheme of real estate.
And Oregon is dog tough for deals.. there Is no questioning that. I could go to the monthly auctions In the 7 Atlanta counties and pick up more properties in one day than most can do in a year in Oregon. In fact one of the largest foreclosure buyers in ORegon followed me to Atlanta and they bought over 75 homes... LOL . its the reason I do this in 12 states.. Portland Sucks for this kind of business on a big scale and something you can count on.. Profits can be nice.. but many do these deals and on a 250k deal lucky to make 10k I know I had a sizable HML company here for 10 years I saw the HUDS.. was not uncommon actually for investors to write us a check when they sold.. given the age of the homes and competition...
The area of Atlanta of course that is hot is Brookhaven I have not pulled the trigger there yet but have been looking at deals there.
I only build new construction here in Oregon and a few remodels..
Sorry you took my post so personally.... Put your lender hat on ...its why you play hell trying to get any loan under 50k its just not worth all the brain drain for so little return...
And its why these deals are best done within family and direct contacts or friends..
wish you the best on it..
I haven't taken a position on anything said in this forum so far. I am open to all sides as long as they are realistic. I hope you would think me a fool if I were to offer a $25k investor a $35k immediate return out of a $40k profit. Now if I was wholesaling the deal to an investor who put up all the money that's a different story. They would reap the windfall. But, where do you think the other $200k is coming from? It doesn't fall from the sky. Either I am financing it or I have structure additional investment capital into the deal. I have never referred to any greedy lenders. Whether a lender is greedy or not I could care less. All I want to know is what kind of deals others have done so that I can maximize my return and the investor's desire to bring his cash to the table in the future.
- Galion, OH · Member since 2015 · 24 posts · 6 votes11y
Maybe this is the wrong question. Perhaps, you should imagine the deal the other way around. What % would you want to receive if you were in the other position?
Sometimes better to spread the wealth and earn a lifetime of partnering than to have many partners who are only partly committed. -?-
*I always try to see from all sides of an equation. Not trying to offend you, of course. :)
Have a great day.
- Entrepreneur · Duluth, GA · Member since 2015 · 68 posts · 5 votes11y
Originally posted by @Gino Barbaro:
Hi bobby
Have you asked your investor what he expects as a return? Let him be the first to ask for a number and then take it from there. If this is your first deal, you may have to give up a bit more to the investor, but of you have a track record then you can negotiate a smaller amount. Have you asked if they want debt or equity?
Gino
I generally prefer to present an offer rather than asking the other side to make the first move. To me, I want it to look like I have done my homework and have critically evaluated the deal from both sides of the fence. Many first-timers, like me, take the position that they are just happy to make a little money and they shouldn't expect to do what other "seasoned" flippers should be allowed. It's all sales and negotiations and whomever can create the win-win scenarios most often will be most successful. If you start off saying I should just be grateful that these superior humans are allowing me to dabble in their real estate world then you will always tend toward giving up the farm. If the deal is good for the investor it won't matter whether it's my first deal or my 1,000th. As a flipper's track record of success builds then it becomes easier for them to secure larger deals and do them more quickly not that they will be able to squeeze their investor's profit.
- Entrepreneur · Duluth, GA · Member since 2015 · 68 posts · 5 votes11y
Originally posted by @Mya Austin:
Maybe this is the wrong question. Perhaps, you should imagine the deal the other way around. What % would you want to receive if you were in the other position?
Sometimes better to spread the wealth and earn a lifetime of partnering than to have many partners who are only partly committed. -?-
*I always try to see from all sides of an equation. Not trying to offend you, of course. :)
Have a great day.
Exactly. The essence of a win-win scenario requires that we think about the return of the investor. But, not as the first order of business. Rather, in conjunction with the whole pie.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Bobby Holley not that anyone is a superior human being... maybe more experienced.. maybe successful in their other business and have amassed cash to be deployed in other venues... Because remember most cash investors are not in Real Estate if they were they would be doing it themselves they are usually in another business..
And there is no harm in trying to find those that are willing to take the deal you want.
But here is some real world experience from my point of view of funding these deals for better than 30 years.
first... investor ties up property with a close date of say 30 to 45 days out.. then they go shopping for the cheapest money they can find.. ( that's logical) after no success in that they go to the next expensive.. after no success with that they keep moving towards more expensive capital.. Now they get boxed in IE they need to close now in 5 days and everyone has turned them down... Lender can't move fast enough and the opportunity goes poof... seen that show to many times to count.
I know from my personal experience track record is one of the main things you need to attract capital.. first time out or very inexperienced folks have a pretty tough time unless they are dealing again with close friends or family.
So sometimes to build up the track record and credibility you have to give the lions share away gladly.. because if your going to do this for any length of time its about building reporte' and track record with those you wish to fund your deals.
There are those in the business that will do deals for nothing just to get one or two under there belt and prove they have done it... sometimes its good to look at the long game
and once you have made your investor great money guess what happens your money gets cheaper and you have a life long investor. prime the pump
- Entrepreneur · Duluth, GA · Member since 2015 · 68 posts · 5 votes11y
Originally posted by @Jay Hinrichs:
@Bobby Holley not that anyone is a superior human being... maybe more experienced.. maybe successful in their other business and have amassed cash to be deployed in other venues... Because remember most cash investors are not in Real Estate if they were they would be doing it themselves they are usually in another business..
And there is no harm in trying to find those that are willing to take the deal you want.
But here is some real world experience from my point of view of funding these deals for better than 30 years.
first... investor ties up property with a close date of say 30 to 45 days out.. then they go shopping for the cheapest money they can find.. ( that's logical) after no success in that they go to the next expensive.. after no success with that they keep moving towards more expensive capital.. Now they get boxed in IE they need to close now in 5 days and everyone has turned them down... Lender can't move fast enough and the opportunity goes poof... seen that show to many times to count.
I know from my personal experience track record is one of the main things you need to attract capital.. first time out or very inexperienced folks have a pretty tough time unless they are dealing again with close friends or family.
So sometimes to build up the track record and credibility you have to give the lions share away gladly.. because if your going to do this for any length of time its about building reporte' and track record with those you wish to fund your deals.
There are those in the business that will do deals for nothing just to get one or two under there belt and prove they have done it... sometimes its good to look at the long game
and once you have made your investor great money guess what happens your money gets cheaper and you have a life long investor. prime the pump
Totally in agreement with you. I can see where that trail of carnage could lead even as I'm stripping out this first deal myself. I heard somewhere that 60% of home purchases dissolve because of the kinds of break downs you are referring to. Good word.
Originally posted by :
Originally posted by :
Have you asked your investor what he expects as a return? Let him be the first to ask for a number and then take it from there.
I generally prefer to present an offer rather than asking the other side to make the first move. To me, I want it to look like I have done my homework and have critically evaluated the deal from both sides of the fence. Many first-timers, like me, take the position that they are just happy to make a little money and they shouldn't expect to do what other "seasoned" flippers should be allowed. It's all sales and negotiations and whomever can create the win-win scenarios most often will be most successful.
Not trying to be argumentative, but few points here for you to consider the other side of the coin:
- What Gino recommended above *IS* the best way to create a win/win scenario. Let's assume that you were to come up with a number and offer it to the investor. One of two things is likely to be the outcome: 1. You offer less than the investor was looking for, and you now you risk appearing as an adversary to him; or 2. You offer more than the investor was looking for, and you negotiate yourself out of some profit. Of course, there's a chance the number you throw out is exactly what he's looking for, but the odds of that are small.
- If you really are just looking to "make a little money" and want to create a win/win, why not just offer to give the investor 50% of the profit? You'll still make a little money (win for you) and he'll make a great return (win for him).
- You say that you want to look like you've "done your homework," but the most important part of your homework is understanding what you customer (the investor) is looking to get out of the deal. The best way to do *that* homework is to ask him.
- Personally, if I were the investor, I'd think less of your negotiating skill if you were to throw out a number to me as opposed to asking me what I wanted. And once I think less of your negotiating skills, I'm less likely to want to work with you.
- Investor · Bonita Springs, FL · Member since 2015 · 102 posts · 37 votes11y
Originally posted by @Bobby Holley:
Originally posted by @Parker Detweiler:
If I like the numbers and knew the person running the project, had knowledge of DOM for the area etc etc etc then I would be more than happy with putting out 25k and receiving that plus 5k at the end of the deal. Seems a little steep to me but as an investor with the right knowledge of everything I would step into that type of deal any day of the week.
The cash-on-cash numbers for a $5k return on $25k looks like this:
2 months = 120%
3 months = 80%
4 months = 60%Exactly, every deal my company does needs to see a 50%+ annualized ROI and if approached by someone we knew and had experience with we would gladly lend then money under the proper circumstances.
Originally posted by @Parker Detweiler:
Originally posted by @Bobby Holley:
Originally posted by @Parker Detweiler:
If I like the numbers and knew the person running the project, had knowledge of DOM for the area etc etc etc then I would be more than happy with putting out 25k and receiving that plus 5k at the end of the deal. Seems a little steep to me but as an investor with the right knowledge of everything I would step into that type of deal any day of the week.
The cash-on-cash numbers for a $5k return on $25k looks like this:
2 months = 120%
3 months = 80%
4 months = 60%Exactly, every deal my company does needs to see a 50%+ annualized ROI and if approached by someone we knew and had experience with we would gladly lend then money under the proper circumstances.
I don't think anyone here is talking about lending money at 50%+ annualized ROI...
What has been suggested above is equity that results in a large return, not debt. Equity also creates risk for the investor, unlike debt (when done correctly).
I'm not sure there are too many people willing to pay 50%+ annualized return on a loan...though I wish there were! :-)
- Investor · Bonita Springs, FL · Member since 2015 · 102 posts · 37 votes11y
Originally posted by @J Scott:
Originally posted by @Parker Detweiler:
Originally posted by @Bobby Holley:
Originally posted by @Parker Detweiler:
If I like the numbers and knew the person running the project, had knowledge of DOM for the area etc etc etc then I would be more than happy with putting out 25k and receiving that plus 5k at the end of the deal. Seems a little steep to me but as an investor with the right knowledge of everything I would step into that type of deal any day of the week.
The cash-on-cash numbers for a $5k return on $25k looks like this:
2 months = 120%
3 months = 80%
4 months = 60%Exactly, every deal my company does needs to see a 50%+ annualized ROI and if approached by someone we knew and had experience with we would gladly lend then money under the proper circumstances.
I don't think anyone here is talking about lending money at 50%+ annualized ROI...
What has been suggested above is equity that results in a large return, not debt. Equity also creates risk for the investor, unlike debt (when done correctly).
I'm not sure there are too many people willing to pay 50%+ annualized return on a loan...though I wish there were! :-)
You would be surprised, under these type of circumstances it happens a lot. However as you said, as an investor I would not go in for equity and only do this as debt for the sheer aspect of liability.
- Entrepreneur · Duluth, GA · Member since 2015 · 68 posts · 5 votes11y
Originally posted by @J Scott:
Originally posted by :
Originally posted by :
Have you asked your investor what he expects as a return? Let him be the first to ask for a number and then take it from there.
I generally prefer to present an offer rather than asking the other side to make the first move. To me, I want it to look like I have done my homework and have critically evaluated the deal from both sides of the fence. Many first-timers, like me, take the position that they are just happy to make a little money and they shouldn't expect to do what other "seasoned" flippers should be allowed. It's all sales and negotiations and whomever can create the win-win scenarios most often will be most successful.
Not trying to be argumentative, but few points here for you to consider the other side of the coin:
- What Gino recommended above *IS* the best way to create a win/win scenario. Let's assume that you were to come up with a number and offer it to the investor. One of two things is likely to be the outcome: 1. You offer less than the investor was looking for, and you now you risk appearing as an adversary to him; or 2. You offer more than the investor was looking for, and you negotiate yourself out of some profit. Of course, there's a chance the number you throw out is exactly what he's looking for, but the odds of that are small.
- If you really are just looking to "make a little money" and want to create a win/win, why not just offer to give the investor 50% of the profit? You'll still make a little money (win for you) and he'll make a great return (win for him).
- You say that you want to look like you've "done your homework," but the most important part of your homework is understanding what you customer (the investor) is looking to get out of the deal. The best way to do *that* homework is to ask him.
- Personally, if I were the investor, I'd think less of your negotiating skill if you were to throw out a number to me as opposed to asking me what I wanted. And once I think less of your negotiating skills, I'm less likely to want to work with you.
That's the art of negotiating. What you have outlined above could just as easily happen in the reverse as well. The investor throws out what they want after they hear the deal. Then the Goldi Locks And the 3 Bears phenomenon ensues: the porridge is either too cold, too hot or just right. I just read a case study where the proposed profit on a deal was $75,000 and the flipper requested a 50/50 split based on the investor putting in all the cash of acquisition with a split of the repair costs. The first investor said he would give the flipper a wholesaler fee of $7,500. The second investor agreed to the first proposal by the flipper. Which offer would you take? Regardless of your answer, the flipper proposed the deal and ultimately rejected one and accepted the other. According to your logic the first investor would never do business again with the flipper.
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