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Paul Winka
  • Rental Property Investor
  • St Louis, MO
70
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315
Posts

Referral fees - NEED HELP!

Paul Winka
  • Rental Property Investor
  • St Louis, MO
Posted Apr 17 2017, 09:34

Hello, referral fees are an area of REI that I have struggled with for a long time. I get that they are part of the business, but I don't feel confident about what amounts are fair and reasonable in a given instance. I don't mind paying referrals, but am trying to walk the fine line between being cheap and being taken advantage of. It's hard to do that as a beginner. What I am looking for are anchors or somewhere to start with, similar to, say, paying a gratuity at a restaurant. With a $20 tab, a $20 tip is not typical. Somewhere between three and five dollars is reasonable and everybody's happy. I really wish that this tidy example was a facsimile for how things work in real estate, but probably not. On with the question then:

In my specific instance, I am acting as a hard money lender. Someone has brought to me a well-qualified borrower. It’s a loan of $320K, and I am putting up 100% of the funds. If I would take 100% of the earnings from this first deal, I would expect to leave with $17,000 in interest in about two months. I would expect roll the loan over and lend to the same guy again. So in this instance, what would be a fair referral fee to the person that had brought me this client? What I have agreed to, and I think may be excessive is 10% each time I do business with this guy. Is that really what people do? I am thinking about renegotiating this. 

Maybe a standard that I would pay the fee three times and that would be it? At some point, they’ve received a fair amount. 

At the end of the day, I want to be able to sit across the table from someone that I paid a referral fee to and he will be happy with what has happened, and not want to do business with me again as someone that has doublecrossed them and cut them out of a deal.