Sign a Non-Compete Agreement to Work w/ Experienced Wholesaler

[Chris Elliott]

Guys, I appreciate your time in even looking at my question. I'm at a crossroads and would appreciate any and all input.

I am new to the real estate game. For the last month or so, I have been working with an experienced wholesaler learning the business. I came to him expressing that I was interested in working for him to learn the business. The other day, when asked how long I planned on working with him, I said 6-12 months (however long it took to learn the ropes). My mentor said that to make it worth his time to train me, he would like me to commit to work with him for 12 months on a 30% commission schedule, and sign a non-compete agreement, basically agreeing to run all deals through his business. (I can totally understand his point in not wanting to train his competition for free).

I see the value in working with someone more experienced to learn a business. The only potential downside I see of the agreement would be if I become proficient in 6 months, and then I am still having to split deals for another 6 months to fulfill our agreement.

Should I take the deal and commit to working with my mentor for 12 months on a split, or should I venture out on my own now and learn through trial & error, books, and of coarse BiggerPockets?

[J Scott]

If you're convinced that he'll provide the value you assume, I see no reason not to commit for 12 months. While you may not need him for that long, that would mean he did an excellent job of training you, and that's even more reason to fulfill the commitment.

Personally, I think a 1-year commitment and getting a decent amount of the profit on your deals in return for his teaching you the business is perfectly reasonable. Perhaps try to get it to 50/50 (I assume you're the one with 30% right now), as one year is a pretty good commitment on your end.

All that said, just make sure you trust his ability/intent to mentor you -- you'd hate to get tied to him for a year and not get anything out of it.

[Chris Elliott]

Hey brother, I appreciate you responding to my questions . . and with the quickness. I heard you are a legend on this site, and that your books are awesome. I appreciate your input and taking your time to answer the questions of green newbies like myself.

Yea, I kinda have a gut feeling that its not a bad way to go. In my heart, I had the same general reaction are you did. I believe its fair compensation to my mentor for his time and expertise. My mentor is actually my age and I think the other value to building the relationship with him is that hopefully we can invest together down the road. He also expressed that as my skill progresses over time, and my need of him goes down, that he would be open to negotiating a higher commission.

Once again, thank you for your time and lending your thoughts on my situation.

You're the man and enjoy your Saturday!

[J Scott]

Originally posted by Chris Elliott:

He also expressed that as my skill progresses over time, and my need of him goes down, that he would be open to negotiating a higher commission.

Thanks for the kind words, Chris...much appreciated...

To your point above, keep in mind that "negotiating a higher commission" is going to be difficult from your side if you don't have something in writing, as you will have absolutely no negotiating leverage during the year (you'll already have an agreement at 30% for 12 months).

While he may very well intend to up your commission at some point in the future, money has a way of clouding people's judgement and he may decide to choose money over fairness when this topic eventually comes up again.

So, if the higher commission is important to you, I'd suggest getting something in writing (perhaps scaled up based on the number of deals you do)...

[Account Closed]

What terms for the non-compete? Specifics?

[Chris Elliott]

not 100% sure yet, we are sitting down tomorrow to discuss exact terms. So far the only specific is that for the next 12 months, any wholesaling I do be run through his business on a 30-70 split. He is paying for the marketing campaigns. I almost see it as I am an agent with his brockerage.

[Troy Sheets]

if he's paying for marketing too, besides negotiating a better split, sounds like a good deal to me even if you can't improve the split. I like the idea of a sliding scale per deal regarding the split. Say first 10 deals are 30/70 then after that they go 50/50. Let us know how it goes.

[Ben R.]

Chris,

12 months is a very short time-frame in which to get a degree in the real estate investing business. To get paid for it is gravy. Of course, you could attend the school of hard knocks and get your diploma that way. It will cost you though. Just my .02...good luck...

[Ceasar Blackman]

I think it really depends a lot on how confident you are with your skills and what available tools you have at your disposal. If you have nothing and the concept is completely new it might not be too bad of a deal, but if you have a fair grasp on the concept and a plan of action and you just need a helping hand with a few things it might not be as good a deal. My .02 cents

[Chris Elliott]

Thank you BP Nation for all your responses, input and genuine care for my situation. For my first post, it was awesome to get so much feedback.

So I have pretty much mentally accepted the non-compete deal as a good way to start in the business and learn from someone farther down the road. Now part 2 of my question is what terms should I request from my mentor for our time working together? I want to start this off by saying to the world that I am grateful the opportunity with him. Below is small mental list of terms I would like to see, as my potential mentor suggested I write them down) I would appreciate any feedback for missing items, revisions, or anywhere else someone thinks I am missing the ball. Thank again and in advance for all the help.

1) Ability to re-negotiate my commission structure after I prove my ability and competence (I am starting at 30%)

2) I will be working with him and not for him (I dont want to sound ungrateful or arrogant in this point . . I worked on a similar structure as a 100% commisioned salesman for a friend once before and gradually became a full-time unpaid secretary/tech/marketer and a part-time salesman.)

3) I dont have to quit my current full-time job

4) I dont have to share my mentor in any other real estate deals (flips, rentals . . basically anything out of wholesales)

Once again, dont want to sound ungrateful or picky, but just want to protect myself in writing. Thank you all in advance for the feed back!

[Michael Woodward]

@Chris Elliott , I think you've found an excellent way to start your investing career by partnering with your mentor....and it's something to be very thankful for because many successful people wouldn't agree to do that (as you said.... training their competition). Keep in mind that there's a real cost to him for diverting his valuable time from his own business to help you with yours. I've read about people that have gone to work for mentors for FREE, just to get the education so I think that the 30% split is a really good deal.

Many people spend many thousands of dollars with guru's for a one or two day event that they hope will provide them a working business model. A two day event can't come close to covering all of the spontaneous situations that will come up during your typical week of investing. You've got someone that's going to be at your side through every step of the process; available for backup whenever you need it which is incredibly valuable!

The thing you want more than anything from him is transparency. If you are involved in every aspect of the process, then not only will you end the year with some cash in your pocket, but you'll have an invaluable set of instructions for doing it over and over. If I were you, I would ask him to show you what to do and then let you do it.....with him looking over your shoulder. It's the difference between watching someone drive and getting the wheel in your own hands.

If you can learn in 12 months what most of us have spent years learning (the hard way), you will be way ahead of the curve.

Good luck!

[Bill Gulley]

First of all, most of these agreements are hog wash, scare tactics to keep other in line. But, they can, in some areas of business be very enforceable so it's best to get a copy, say you want to take it home and discus with mom, or dad or the wife and have an attorney look at it.

Often, people make up non-compete agreements and they are not enforceable in areas of business unless they are very well defined, reasonable in protecting intellectual property or customers and such data significant to that company, they are often going into non-disclosure agreement rather than non-compete, and that may make them harder to enforce by not addressing the proper type of agreement to be made.

While some guru may be able to protect certain phrases of a contract, he can't keep you from using standard contract agreements. RE markets may not be protected or you can't define an area of the market that someone can't deal in. You also can't protect buyers or sellers by a list of known players in the market. If they have, say 3 buyers who have only dealt with them, they may be able to raise issues if you try to steal a limited and regular source or group.

This is not to be mistaken for franchise agreements, that's another animal, but if I'm in the candy business and I carry your product, you can't keep me from selling other products all over the country, you might be reasonable with competitive products in a 20, 30, 50 mile radius.

It boils down to as to what is customary in an industry and non-compete agreements are not common in RE. Local customs will determine what is reasonable. You can't tell a carpenter he can only use this hammer and only use that hammer on your projects, you can't tell someone how to do options and then say you can't do any type of option in this town. Won't fly.

That's why you need to see an attorney, as some things, like his contract or a particular unknown method could be protected.......but there really isn't anything in RE that works that hasn't been done before. :)

[Chris Elliott]

thanks to all for the help, i took the deal

[J Scott]

Originally posted by Bill Gulley:

Often, people make up non-compete agreements and they are not enforceable in areas of business unless they are very well defined, reasonable in protecting intellectual property or customers and such data significant to that company, they are often going into non-disclosure agreement rather than non-compete, and that may make them harder to enforce by not addressing the proper type of agreement to be made.

Not to mention, even if the non-compete is very well defined and reasonable, it still may not be enforceable. For example, California has said that pretty much all non-competes are void within the state.