All Forum Posts by: Scott Brewster

Hey BP!

I've got a good friend of mine in Jax that is looking for a private money investor/lender to perform a commercial warehouse flip. He has some experience doing this himself with his family's business so he's confident in his ability. He's very motivated and will be heavily invested himself on this entire process.

It's looking like he'll need at least 900k to get the property, and will potentially take 12 months but projected ARV is looking towards 1.6m.

He's very cautious with using private money so would probably need to meet face to face. I am out of the country or I'd be running around finding a lender myself!

Please if anyone knows anyone they've worked with successfully in the Jacksonville area (or reasonable driving distance) let me know! I'd like to see him start a successful relationship with a private lender out there and to not lose out on this killer deal!

So please DM me or post any info here and I'll forward everything to him.

Thanks!

@Kerry Noble Jr that’s exactly what I was going to do actually! 

@George Mastrosavas holding myself back from investing and starting a business/team that could potentially lead to fantastic things down the road. 

@Greg Bond Thank you and I will!

@Michael Plante I appreciate your reply, we are forming the proper legal entities right now so we are all more protected from one another. The contractor is a friend and we're all starting out, this entire business is based on trust and relationships. I am facing a MAJOR hurdle being stuck over seas so I'm doing what I can to continue being an investor. Yes, risky, but this is what I'm dealing with right now so I have to give it a shot. The contractor is paying herself with her portion of the 50% split, so whatever she draws she will take from her slice of the pie at the end. I believe this will motivate her to keep her budget tight and to continue with a good pace. If she screws up, she pays for it.

@Theresa Harris Thank you! It's stressful and scary for all of us but we're doing our best to negotiate peacefully and we have a solid investor to help fact check us. He's also our CPA and attorney to help us structure everything. We're lucky to have him.

@George Mastrosavas If you had the choice to invest while you're able to afford mistakes wouldn't you? I'm in the Middle East and stuck here since Corona Virus, I have to do something or I'm just going to be holding myself back.

@Gene Cook Thank you for sharing! That's similar to how we were looking at it, since I'm taking the entirety of the risk I asked that she pay herself out of her share of the 50% that way she'll be motivated to tighten the budget and keep a good pace, any mistakes are out of her pocket. We've got a great CPA/Attorney/mentor helping us drive this train so I feel like we should be good. I appreciate your input!

@Anthony Angotti Thanks! We split it like this since I'm really the only one bringing money to the table to start, if you read above we are going to split it 50/50 but anything she pays herself is taken from her profits. If she goes over budget, it's out of her paycheck. Figured it was fair until she can share in the risk as well.

@Nate Sanow Please peek at the above, I feel we made a solid compromise. If she breaks budget, then it's out of her paycheck at the end. I asked for that because if the flip turns out to be a flop, she'd still get paid, and I get lemons. No one wants that. We're all starting out here so we're trusting each other, my name will be the only name on the property until they can bring more to the table. We intend on reinvesting our profits together more equally on our next deal if we work well as a team. I will absolutely audit all her purchases. Thank you for your input!

@Justin V. 1. I've got limited options since I'm overseas so I'm sticking with people I know and we're all working together to create something fun.

2. If there's a loss, we will evaluate on what happened and recover from it. I'm making enough that I can recoup quickly while overseas. If the market crashes, I'll still own a fixed up property and I'm making sure that I can rent it to cover any mortgage after the rehab is complete. If it goes on too long, it's not too bad, it's all my money anyway I don't owe it to anyone.

3. Because she's doing all the labor, design, and management of the entire flip.

4. We are all profiting or losing from this, if I lose money and the team doesn't work out, she'll never have a deal with me again and I try elsewhere. This is business, yes it can get risky, I understand what there is to lose or gain from this and I'm willing to try because the good side of this can be fantastic, the bad side just means I get to try again elsewhere.

Thanks a ton for your input! I do appreciate it and we're doing what we can to protect each other from each other.

@Osazee J Osagie This is a great point and thank you! We are putting the proper legal entities in place right now and have a CPA/Attorney/mentor guiding us. I appreciate that!

Thanks everyone, I understand I'm getting a mixed bag of responses here. Everyone's risk tolerance is different and I want to try something big. If it works, we take what we learned and move forward, if it doesn't, we take what we learned and move forward.

Cheers

@Steven Skinner We're going to get with an attorney next week to figure out the best way to structure the LLC for us. Definitely going to try and protect my investment as much as possible! You made a lot of great points in your post and I appreciate them all very much! I completely agree with you on these points too. I have definitely reworked how to share the profits now.

@Mike Wood I definitely see where you're coming from there and partly agree, they're doing absolutely everything though and would like to build relationships with them so we can invest together as a group later down the line.

@Greg Bond They definitely have experience and are very good at what they do! Just lacking the proper paperwork and we're going to work on that as we go. I'm definitely going to get a better portion of the split and absolutely understand including wiggle room for errors. Thanks a ton

@Will Barnard It's all good on the comment I was just noting the sarcasm it was definitely called for haha I'm not offended. I appreciate your insight here very much as well.

As for everyone, I'm going to go back to the table with my friends and pitch this: If you want a weekly draw for doing the work, it will come out of your 50% of the split. I understand you are doing all the work and starting your company but with the risk so high and no one else having any skin in the game you need to pay yourself.

I figure with this she will be much more motivated to budget better and get the job done as quickly and safely as possible since it will give her a bonus at the end.

SO I appreciate everyone's insight and we all learned a ton while reading your comments. We are all doing this as team work to get our investment portfolio started as well as get traction on our businesses. I fully understand that I am taking a lot of risk with this AND sharing the reward, I believe my solution (have contractor pay herself with her 50/50 side of the split) makes it a bit more fair. We all want to make this into a team effort to get into larger properties so we're all trying our best to share in this. Once we have combined funds we are going to be able to share the risk a lot better but we've all gotta start somewhere right?

Thank you ALL for such great insight and it was really good to get so many different point of views. The BiggerPockets community is amazing and I appreciate everyone's help! I'll post our first deal on my page and hopefully we all learn something and walk away with it with some extra cash on hand!

@Scott Wolf Thank you a ton for saying that. I've been pretty conflicted especially after the last few berating comments... that being said I came to a conclusion, I'm going to stick with the 50/50 split BUT if the contractor wants a weekly payment, it's coming out of their side of the 50% until they're able to put some skin in the game.

So for the first deal I think that's how it'll have to work until the risk can be more fairly split.

@Greg Bond I completely agree with you and that's why I was so conflicted! I felt like just a lender but at the same time I'm kind of kick starting everyone's business too. So after a few deals I'll happily be just the passive investor, until then I'm gonna have to put some boundaries on it.

Thanks everyone for their input and if anyone else has any other ideas please do not hesitate to contribute! Especially if someone's been through this specific situation before.

@Scott Wolf as it is now, 50/50 contractor and myself and the Realtor gets an active client.

Doing the numbers that would be the best outcome for everyone BUT since the contractor wants to be paid as a contractor I'm running into an issue. If the contractor is managing and actively DOING the entire flip and remodel, what would you split it as is my question.

I'm essentially doing no work BUT taking the entirety of the risk, they are essentially doing ALL the work and double dipping. I don't want to be greedy but would like to be fair. They're running a business as well as helping me out, I'm helping them out as well as running a business. Would 60/40 or 70/30 be more fair until they can supply 30% of the property purchase so we're sharing some more risk?

Sorry for the confusion, team is structured as such:

Realtor: Works for commission but is finding us on and off market deals as well as has cash to invest if needed but this will be our first deal so we're trying to keep it simple.

Contractor/remodel manager: actively doing the labor, designing the remodel, and managing any work she can not do herself. Bringing no cash at the beginning since we're all starting here.

(Myself) Lender: Purchase property and fund remodel.

We are going to do all of this through an LLC with liability insurances in place. The contractor has her own LLC and insurance. The name on the properties will be the LLC not me.

I think it would help by saying that we are all friends, I am currently living outside of the country so this did solve a problem of mine and we fully intend on working together over many deals this is just the very beginning of us forming this team so we're putting out feelers to gather as much info before pulling the trigger.

I think it makes me feel that this deal is pretty fair because I'm essentially doing no work besides reviewing their numbers and making the final decision. But yes taking the risk fully too. This, however, frees me up a lot of time to focus on my full time job and small start up business.

@Will Barnard @Scott Wolf @Steven Skinner @Darius Ogloza

Did that clear things up?  We're all essentially working 2 roles. If you still think this is not how we should do it, how would you? 
I really do appreciate all of your input!

Thanks

@Nicholas Field Yea it would be easier if we had that exact set up as well... Our contractor is actively doing the work on it and wants to be paid weekly as well as since she's the only one doing the labor splitting the flip. I think it still works out nicely because she's including her fee into the remodel quote. Since she wants to be paid weekly I asked if they minded me charging 10% on the private loan and they didn't mind at all. I feel it will end up pretty fair. What do you think?

I am teaming up with a realtor friend and a contractor friend. I will be acting as the private lender for the entire purchase/remodel, the realtor will be our deal finder/seller and be paid commission, and our contractor will run and manage the entire flip.

Is a 50/50 split for lender/contractor ok here? We flirted with the idea of charging interest for the purchase as well as paying contractor per week for labor but I think we'd both be better if we just pay each other out after all expenses and split the sale profit 50/50. Anyone else have a similar situation like this? Anyone else have a more creative way to split these up?

I appreciate any insight!

@Etta Moore

Step 1: would be get your finances in order.

Step 2: get involved in the real estate investing community

Step 3: learn as much as you can from those around you, podcasts, books

Step 4: start perusing Craigslist/social media for “we buy houses” ads and collecting their information for a possible buyer list.

Step 5: drive for deals, mail marketing, cold calling

Step 6: once you find a motivated buyer work the numbers and if you can’t make it work for yourself, start calling those numbers on your buyer list and give yourself a little wholesale fee if you’re able to.

Over time you’ll make money and have a network of people you’ve worked with before and your systems will take off.

This is not “the easy way out”. There is a TON of work to do and even more to learn. I suggest finding a mentor and working with them to keep you on track. We all get distracted starting off and it’s a lot better to focus on one thing at a time instead of all of it at once.