Value of money partner? (by Robin [WI]) Feb 12, 2018 7:23 AM|
Value of money partner? (by razorback_tim [AR]) Feb 12, 2018 7:27 AM
Value of money partner? (by Deanna [TX]) Feb 12, 2018 7:31 AM
Value of money partner? (by NE [PA]) Feb 12, 2018 7:38 AM
Value of money partner? (by NE [PA]) Feb 12, 2018 7:49 AM
Value of money partner? (by S i d [MO]) Feb 12, 2018 8:18 AM
Value of money partner? (by S i d [MO]) Feb 12, 2018 8:20 AM
Value of money partner? (by NE [PA]) Feb 12, 2018 8:37 AM
Value of money partner? (by Dave [MO]) Feb 12, 2018 11:56 AM
Value of money partner? (by Landlord ofthe Flies [TX]) Feb 12, 2018 1:21 PM
Value of money partner? (by CGB [MI]) Feb 12, 2018 3:05 PM
Value of money partner? (by elliot [RI]) Feb 13, 2018 12:09 AM
Value of money partner? (by Eddie [KY]) Feb 13, 2018 7:59 AM
Value of money partner? (by Chris [CT]) Feb 13, 2018 5:38 PM
Value of money partner? (by Chris [CT]) Feb 13, 2018 5:45 PM
Value of money partner? (by Robin [WI]) Posted on: Feb 12, 2018 7:23 AM
Suppose I'm a successful flipper who needs cash to expand. I'm looking for a money partner. He/she funds the deal 100%, I do all the work. What is a fair way to split the profits?
I can see it from both sides: If I'm the flipper, I need a financial partner. I could get a bank loan for 8%, except that the origination fees make it too expensive, I have to have some skin in the game, and they're not interested in a short-term loan anyway. So if my flips are giving a 30% ROI on a six-month term, I might be willing to give a 25% partnership share. After all, I'm doing all the work and my financial partner is "just" providing the funding.
On the other hand, if I'm the one providing the funds, I could say, "This deal won't happen without me AND I'm taking on all the risk. So I want a 60/40 partnership split."
What's fair? What have you done or seen done?
Value of money partner? (by razorback_tim [AR]) Posted on: Feb 12, 2018 7:27 AM
I haven’t done it on flips but on rentals I have done this:
Money partner is paid “market” rate on their money
I am paid “market” rate on my time
Partnership is 50/50 so profits are split 50/50 after paying for money and time. --70.182.xx.xx
Value of money partner? (by Deanna [TX]) Posted on: Feb 12, 2018 7:31 AM
The way I usually see it recommended is giving the money partner the larger share of the profits. There's any number of guys who can flip things, or offer investment opportunities, but there's a very limited number of people with money to spread around to Make Stuff Happen. So by giving them the larger share of the profits, you make them happier to invest in your biz, and not someone else's. --96.46.xxx.xx
Value of money partner? (by NE [PA]) Posted on: Feb 12, 2018 7:38 AM
It all depends on the deal. When I have done this, I've paid 15% on investment all the way 50% of the profit.
I'm ok with either.
A seasoned investor borrowing the money is more likely to call the shots than someone getting started who desperately needs it. --174.201.xx.xxx
Value of money partner? (by NE [PA]) Posted on: Feb 12, 2018 7:49 AM
One thing you have to keep in mind is, even though the deal might not happen for the "working" partner without the investors money, there won't be anything for the investor to invest in without the "working" partner either. --174.201.xx.xxx
Value of money partner? (by S i d [MO]) Posted on: Feb 12, 2018 8:18 AM
NE, I disagree there are no alternatives. Investors have a plethora of choices, some very low risk, that yield reasonable rates of return. Stock market (on a tear until recently, but still up 20% over last year), tax free municipal bonds (6% in my town, no taxes...so around 8% actual yield), and other such investment that require little to no effort on the investor's part.
I think being a money partner would have to account for the risk involved just like one does with tenants, but even more so because that money could go "poof" overnight if the flipper mis-estimates the cost or gets hit by one of the the 5 D's. (Death, Disability, Divorce, Dissolution, Disinterest).
If I did these kinds of deals, a newbie (5 or fewer flips completed and sold) would get 30% of profits. Experienced investor 50-60% depending on the time-frame. Joint ownership for sure and a very detailed partnership agreement spelling everything out, including the 5 D's. --173.17.xx.xx
Value of money partner? (by S i d [MO]) Posted on: Feb 12, 2018 8:20 AM
Dang, can't type....
Newbie would get 30-40%. Experienced flipper 50-60%. --173.17.xx.xx
Value of money partner? (by NE [PA]) Posted on: Feb 12, 2018 8:37 AM
Sid, yes I understand there are different investment vehicles. That's not what I meant. Obviously anyone can go out and invest some money in the stock market, or gold, or nuclear war supplies. I'm talking about investing in real estate. Where the money is at.
When I said not having many other options, I was referring to a "Let's get together for coffee and discuss this deal" investor versus a hard money lending institution.
I think that Robin is more of a let's get together and discuss this kind of investor. So she's working hard to seek out folks to invest with as much as people are seeking out investors. So in her situation, flexibility is key. --174.201.xx.xxx
Value of money partner? (by Dave [MO]) Posted on: Feb 12, 2018 11:56 AM
In the past, I paid an investor 20% of net profits. This worked good for both of us.
Value of money partner? (by Landlord ofthe Flies [TX]) Posted on: Feb 12, 2018 1:21 PM
Depends on the investor's risk.
If you treat them like a lender:
I wouldn't pay them more than what the other hard money loans charge.
If you guarantee to pay their principle even if the project loses money, that would lower the percentage since it mitigates risk.
If you treat them like a partner:
Then they'd get more because they have a higher probability of losing money. Probably wouldn't do more than 50% though.
Keep in mind that they don't want to charge too much that it gives you an incentive to save up and not use a lender.
Also turnover is important too. If you can deliver a return in 6 months, that's more valuable than a 12-month delivery and as a lender I'd be willing to take a lower rate. --108.69.xxx.xxx
Value of money partner? (by CGB [MI]) Posted on: Feb 12, 2018 3:05 PM
As with any deal, everything is negotiable. I agree with the above that the experience and previous portfolio of the flipper will determine the percentage. A first time flipper may not be able to find funds without offering a higher percentage of the profit. However, if you have a portfolio of flips documenting the time, budget and profits of previous flips you could get a better deal. Other ways to get a better deal: offer to title the property in the investors name as an asset in case you breach your agreement, offer to pay a portion of the funding which you loose if you breach your agreement, offer a higher return on the investment if it takes longer than anticipated. If funding the entire project, purchase price, remodel budget, marketing, taxes, realtor fees, etc I would not take anything less than 50% of the profits. If you are looking for just a borrowing rate I would say at least 13-15% of the loan. --50.77.xxx.xxx
Value of money partner? (by elliot [RI]) Posted on: Feb 13, 2018 12:09 AM
I am aggressively paying down the mortgages and obtain HELOCs for that purpose. I don't flip, but the funds will be available immediately if a good deal comes around..
It is much cheaper to use bank's money (5% currently).. If you are doing many projects, then HELOC alone is not enough :) --71.232.xxx.xxx
Value of money partner? (by Eddie [KY]) Posted on: Feb 13, 2018 7:59 AM
Find a small bank who will do a interest only or a term note with the house as collateral. tjeu ,au call them rehab loans. --66.117.xxx.xx
Value of money partner? (by Chris [CT]) Posted on: Feb 13, 2018 5:38 PM
I give my money partners 50%-30% or pay a percentage.
IDK about money being hard to find I turn it down constantly.
A lot of times the terms are just not worth it.
The simplest way I have found to structure these deals is to close the property in your preferred company so you have all insurance, licenses etc in place. The investor than takes a mortgage back on the property for the value of their loan. Things go south investor gets the property.
If your deals are good their is plenty of equity. I'm doing two now. One is $280k on a finished house worth $390k. Another is $200k on a house and a building lot worth $400k.
You must make it crystal clear in the beginning that the money partner will have zero input on the deal beyond the financing. I am very good friends with some of my partners and I love their input and doing business with them. BUT its my deal that's my space and they respect that. That's key, you don't want them thinking they own it and picking stuff out like kitchens and mucking it up.
Value of money partner? (by Chris [CT]) Posted on: Feb 13, 2018 5:45 PM
Secondly try to establish a relationship with a bank. They will do all kinds of cool things that people say banks don't do, once you have a relationship with them.
Private money is nice because its very flexible, but if your doing a lot your going to need a bank.
Private money over $300k seems to be a bit harder and more expensive to get. Once your over $1m you need very flush friends which I don't have, or a good banker which I do have. --24.45.xxx.xx