I found a new investor and we are discussing how we should be compensated. Does anyone have any suggestions? I find the houses,fix them,try to sell them. He finances them and would like to have some profit at the end of the deal. philday1@comcast.net
The way it was always explained to me was that profit would be split 50/50. 50 for the money man and 50 for the working man, this of course assumes a private venture.
Congratulations on finding a partner to work with. Hopefully, you'll have some great stories to share in the future. Can you post (links to) project pictures here??
A 50/50 split is an interesting starting point for the conversation and you may even end up there but as you may have discovered there are a LOT of gray areas in the middle that you should talk about and hopefully make *written* agreement about before you begin counting and splitting your profits.
Be sure you know what each partner expects as a return for their contributions even (and especially) under the worst conditions. If for example you have a net loss at the end of a project, how will you both feel if the investor takes 100% of the cash loss and you take the loss of time (and possibly other wages)?
What if there's only a small profit and the investor nets a 10% cash-on-cash return but you end up with only a $1000 payday for three months hard work?
And what exactly is profit? Be sure you agree on the project parameters so you don't spend $5000 on fancy appliances when your investor thinks you should be buying from 'Bargain Hut'.
Get an independent and neutral accountant who can explain common accounting principles and maybe help moderate disagreements of what qualifies as a genuine expense. You may even want to build in some allowable 'interest cost' for the investor and some 'labor cost' for yourself as legitimate project expenses before you start taking a split.
There's an episode from the A&E season where Richard's (lifelong friend?) Kevin decides he wants to 'partner' on a deal for the Folly Beach House. Richard said in that episode it was the largest deal they had done up to that point.
You may have noticed Kevin is not part of the team in The Real Estate Pros. Some have speculated it was because he took a 'vacation' during a flip but my guess is life long friends don't part company over so trivial an issue. It's purely wild speculation on my part, but there's nothing like a million dollar deal gone bad to create difficult or potentially unresolvable conflicts among even the best of friends.
Business partnerships can go very bad- very quickly over much less.
- If either of you have spouses, keep them in the loop. - Talk about expectations and motivations not just dreams, goals and aspirations. - Be realistic; set measurable benchmarks - Clearly define scope of project/scope of work - Clearly define roles of responsibility - Demonstrate mutual respect - Establish contingencies for good and bad outcomes - Predefine option strategies for worst-case scenarios - Write everything down and discuss meaning and intent of your agreement so you don't end up arguing over the definition of the word 'is'.
If you can't agree on these kinds of issues before you start a project, imagine how difficult it will be to do once the pressure is on and your time becomes real money.
(I posted this here where you are likely to be able to find/read it easily. The amount of junk email you are going to get as a result posting your email address in a public forum will surely render that inbox virtually useless.)
Were I a moderator here, I'd remove email address info from public posts as a matter of security.
While I'm sure the topic author is an honest sort, trolls and deviants are not above posting 'bait' like this as a means to procure membership lists or collect the email address' of victims for other kinds of scams.
