Leading Investors - Guidance on Equity Compensation

[Jason Gladstone]

Hello BP Community!  This is my first non-intro post so go easy one me :)

I've been wondering about this scenario and searched the forums but couldn't find the answer so I decided to ask it (them):

If I find a residential deal and manage it through close for 1 or more investors, is it appropriate for me to take an equity stake in the property as compensation?  

If yes, what would be a general rule of thumb for what that stake should be?  (Note:  I understand every deal is different and the actual amount would vary by deal/be negotiated up front --just looking for guidance/general thoughts from the community)

As I'm trying to learn as much as I can, please feel free to share any other relevant info that I didn't know to ask.  Thanks in advance!!

[Allen Fletcher]

@Jason Gladstone

If you are going to use this method for investing you should make sure that all partners/investors sign an operating agreement that lays all of this out. I invest this way and I will give you the bare bones of the agreement that we use:

Equity is divided according to the percentage of capital invested be each investor divided by the total invested capital (Capital / Total Capital). This means that equity in a property is divided up according to how much money each investor put in to purchase/rehab it. If you do all of the work, but did not invest any capital you can put a clause in the agreement that will allow you a percentage do to your "sweat capital" investment. As far as what is fair, you have to sit down with your investors/partners and decide what is fair, write it down, sign it, and notarize it (optional).

As for your question of the amount of equity you consider your compensation I would say you should take at least 10% maybe up to 50%, but this all depends on what you and your partners/investors agree upon. Typically, if they just give you money and you do all of the work you can work out a 50/50 deal. The higher their involvement the lower your percentage will be.

If you need more ask,

Allen Fletcher