What should my share be? What's fair?

Question

I created a system to find motivated sellers. I am now finding about one a week or so, that are ready to sell now or in the very near future (probate). I got my license last year, but I'm green in real estate. I have learned a lot from podcasts and reading. So my question is on these deals, what is fair for my share? The two properties in question could be quite lucrative. We are in the heart of Los Angeles. Example of one: A buy for $500,000, rehab for $200,000 and sell for 1.2 to 1.5 kinda deal. I found the seller, talked to him, negotiated and made an offer.

Have to bring in partners because I have no money and no flipping experience. A friend/partner has flipping experience and his partner is a licensed contractor with lots of experience. We are going to use a HML. Just curious what you think is a fair share for me. They offered 15% and I can be agent on buying (from owner now) and selling(when we flip it). Also, to complicate things, I did the math and think we should BRRRR. It could cash flow quite nicely. What should I get in that case?

Thoughts would be greatly appreciated. I don't want to be greedy and get resentful or undercut myself.

Yes, I will get a lawyer.

Nghi Le · Answer

I'd like to think there are 3 valuable roles to make a deal work:1. The one who finds the deal2. The one that funds the deal3. The one that manages (or does) the rehabYour share could be between 30-50% of the profits (which may include your realtor commissions), since we all can argue right now that finding the deal is probably the toughest part.Another thing to think about is who's going to get the loan? Ideally, the person who has the most flipping experience (and hopefully has decent credit too), as those would qualify you for the best terms. Most HMLs only need one person to qualify for and personally guarantee the loan.

Renee Harris · Answer

Thank you all for your responses. Gives me a lot to think about.

Michael Lee · Answer

Hello Renee! That is an interesting question. My answers are meant to provide you with good logic and is not meant to be a personal attack. I was a real estate broker in Texas for about 30 years and the bulk of my experience of about 30 years in and around Dallas, Texas where I was born and raised. I would suggest that you should never go below a 50/50 or 50/25/25, with you securing 50% of the profit. I would probably not ask for more than 60/40 or 6020/20 with you getting the sixty. Of course I do not know exactly how the others would be involved but I am assuming that they will both be highly involved with the remodeling/rehab project. Their involvement will mean the bottom line of what they get from the profit according to a professional appraisal after the repair/rehab or a resale to someone else. What is very important is the final budget and how complete it is or how detailed it is and the anticipated profit with that done.With a $500,000 profit to split everyone deserves their fair share depending on the participation in making things done properly and every bodies involvement. The important thing for everyone participating in the deal should understand the importance of your involvement in the deal and that this would not happen without how you used your mind to make this happen.You should get most of the renal net of the positive cash flow after any debt is paid. I would recommend that you probably split that profit in the rental of the unit about 90/10 or 90/5/5 assuming you take all of the property management as your responsibility whether or not you hire a property manager or a property management company to be involved in the daily operations and you would manage the manager and keep their monthly reporting that you need.I am assuming you will own the property under your name or a company you own. and/or you control what happens to the property which might be owned by a Partnership company. You could include or not include the selling cost after the repair/rehab if there is a transaction to your ownership or anybody else. The exit plan could change based on your decision. I hope that some of this will help you.Good luck to you!

Caleb Heimsoth · Answer

@Renee Harris if you’re taking a wholesale fee probably 20-50k. If you’re a partner or share of profits I’d give you no more then 10 Percent

Karen Margrave · Answer

The question is, how much are they bringing into the deal? What are the costs for the HML? What is the experience of the contractor and what will his part be? Will he be paid strictly a percentage of the profits or will he be paid for the work done too? What is the experience of the flipper and what will that person be putting into the deal? There's a lot of hands in the deal.