Tim! Need help with partner or not partner.

[Dee-Texas]

I've tried to figure this out so long my head hurts. I need someone that's a whiz with the figures.
I had this person approach me wanting to partner. They have all the money. I do the work, finding the deals, putting them together, dealing with tenants/T/bers, etc. We (the new company with the partner) pays 5% interest to the money loaned on the property. THEN any money is split either at the end of the year or when we sell.......Good deal or not? I can get a loan with 10% down and 7.25% fixed for 5 years, amorz. on a 20 year term.
I don't get paid anything until the end of the year for work done(by me, but I can write checks for any construction, etc). I can pull money from the account if I *need* it. The other partner has to take out the same amount.
I've played around with a 30K property and just get *muddled*
Help me figure this out before I answer this possible money partner.
BTW.....money is NO object....they tell me to just go find properties.
BUT not getting paid anything for my work.....Hmmm?
Thanks to all that answer.
Dee-Texas

[Admin]

Dee,
Please explain the following:

1.  Why do you need this person?
2.  Why a 50/50 split, ignoring contractor work, isn't reasonable?
3.  Why you would do the construction work for free?
4.  Is this a partner or a lender?  (seems they want to be both)

I can get a loan with 10% down and 7.25% fixed for 5 years, amorz. on a 20 year term.

What do you mean by the above?  With this person or on your own?

I don't have a ton of experience with this, but here's what I've commonly seen.  Either they loan me money and get paid that way or they have an interest in the deal - not both.  If they're simply a money partner, then we split everything after expenses.  In other words, contractor work ain't free and your other company should get paid.

This person's looking for slave labor in my opinion and has offered an extremely slanted proposition.

Translation:  Based on the offer alone, this is someone I would watch very closely.

[David Alexander]

I agree with Tim....

I currently borrow money on a 50/50 split... minimum of a 25k investment...

They take half the risk that way...  But, the upside they take half the rewards....

So deals work like this...

Bought a property....  109k owed on a 6% loan.... 5k in arrears...

Seller wants $2,500... property will sell for 139,900....

The Investor puts up the Cash and makes the payments until it sells...

So, they will probably have an investment of about 10k on this deal...

We get in say a 8k down payment... Everything splits 50/50...

4k to investor... 4k to my management company...

Half the cashflow... Half the gain.... Half the depreciation...

You have to have the money to keep you liquid....  I'm fortunate... I don't need outside investors...  But, on the otherhand... it's better to get you investment for FREE than for a 100% yield...

You don't need them... They need you..... Don't structure your business any other way...

So what do you do on a property that needs repair....  

Maybe, something like this... I can only assume to know the numbers...

You buy a property for 30k worth.... say.... uMmmm... 55k...  and it needs 6k in work...  (3k materials, 3k labor)

He puts up the 30k.... the 6k..... And you hire the labor done...  doesnt matter who does it... it still has to be paid... and if it's a company you own... (that's immaterial)... it still has to be paid just alike another contractor...  Contractors have to eat to....

You Exit...  with Owner Financing/LO....  

With say 4k down.... and a note of 51k.... Everything is split...

Cashflow... Depreciation... Gain... and half the downpayment...

Now, here's where the twist is....  If you could go get a loan for say...  7% then pay him out his 7% before calculating the cashflow...

Now I met amortize the loan over 30 years... and of course the 10% would be gone... But, that's not his concern...

He still gets a great deal and you get a great deal...  As well as if you Cash it out.... Everyone wins...

You can always increase your business/marketing to make up for the 50/50 splits... and it's better to have investors not hounding at your door... if a deal go temporarily bad...

Also, on cashflow deals... if the folks stop paying... the investor makes the payments while you do the eviction... and then when you get any more down payment from the next guy... the Investor gets all downpayments and cashflow from the deal until he's gotten back any extra investment...

So, for instance on the deal... at top(first deal I was illustrating)... where the investor had 6k left... and the cashflow split was say 200/month each...

Say, the deal went 9 months... and the tenant-buyer quit paying... It takes say 3 months to get him out and get resold...  the Investor makes 2 payments of $1100 each... Then when the down payment of say 3k comes in... for a quick sale... the Investor gets his $2200 back first... and then you go back to the 50/50 split...

David Alexander

[Dee-Texas]

The construction, repairs, office expenses.....ANYTHING to do with the property either comes out of OUR (partners and my new company) OR the partner pays it upfront with the price of the property. IF Henderson construction does the work we get paid.
I'm looking at a property now.....seller wants 28K....ARV is 48K. It needs new carpet $1,500 tops. The partner will put up all money but I won't get *paid* until we divide the income less expenses from the property at the end of the year or we sell it which ever comes first.
I can get a bank loan with 10% down, 7.25%....amorz. 20 years with an ARM in 5 years and then the whole thing is mine, problems and all. This is what I'm trying to figure out, which  is the best payday/less risk for me and why?
OK, sorry for the mixed up question....I told you my mind was mud.
 :oops:
Dee-Texas

[David Alexander]

First Seller "Wants" 28k....

Can that be negotiated further...

Anyway... we'll take it from where it is....

10% 2800 plus some closing... $500 or so... I'm sure...

So your in for about $3500... Payments about 199.17... if you finance 25,200...

Fix it for about 1,500... You've got about 1,500 plus, $500 (making and assumption here) and $2,800.... Right at 5k... Invested....

How long will it take to sell... Say 2 months... ($400) with maybe 2k down...

$3400 invested... you should easily cashlfow 200/month...

200 * 12 equals 2400 or about a 70% return on your money...

Not to mention back end profit...

Or cash it out...  and pick up about 15k... after expenses if a realtor isnt involved....

Or how about this... Your guy funds the whole deal...

28k plus the $1,500... your in it for 29,500...

You, Fix it, Sell it... for the 48k....

Upon close with a new buyer... he gets a reasonable interest rate on his money... say 7%... 29,500... 228/month... 240 months...

Now you sell....  for the 2k down at 48k.... And split everything above...

The balance of the loan...

He gets 1k, you get 1k....  46k @ 10%... 240 months... 443/monthly...

Minus 228 equals 215.91.... You each get 108 dollars a piece cashflow...

of the split...  

And a back end profit of... 8k or so....

He gets a 12.5% yield on his money for half the risk...  they default... you do it again....

Or Cash it out and you both pick up 9k a piece..... You with no money out of pocket....

You then get use your money for what it was meant for....... Marketing the business... Direct mail, flyers... and Of course BanditSigns... Lol... And big corp expenses... dinners, Cars, and vacations...

David Alexander

[Dee-Texas]

WOW!! I forgot how David's mind works. I miss seeing you guys *figure out the angles* in person Maybe we can get together for a TEXAS convention.
Thanks again,
Dee

[Eric C]

Hi Dee-

Enjoyed the thread and David's math -- amazing typing for David. Do you think he dictated it? (just kidding:))

Anyway, I'd like to second your idea of a Texas convention or something much more informal.

Atlanta's nice -- but anywhere in Texas would be better.

Take care,

Eric C