New to MF investment, coach wants 50/50 profit split. Should I do it?

Question

I have been investing in residential RE since 2010 and have bought and sold RE within that time frame, but it's all in residential space. The most multi-unit I have done so far is 2 units. I am in talks with a reputable company that signs up proteges in commercial RE, but I am struggling a bit with their terms: the sign-up fee ranges from $10k - $40k, and a definite 50/50  profit split up to $1M mark, meaning the individual gets up to $500k, which could come from cash flow, cashout refi, sale, etc. There is no time cap on the $1M mark.

I have immersed myself in many educational materials over the years and plan to continue doing so wrt multi-family RE investing. I still manage my own properties myself today and have a decent structure in place for that. I am trying to decide what I would lose by not working with this individual with a good track record and a large YouTube following. I feel I could continue leveraging content here on BP and other reputable sources for coaching without giving up this much in profit. Am I greedy or overthinking this? Please share your thoughts. Thank you

Tom S. · Answer

@Olu Efunwoye I personally wouldn't pay for this, $40k for a coach?  Not sure what they're offering exactly.

If you're managing your own properties already, a few more units isn't too difficult. I have a 5 unit which is commercial, a combination of commercial units (yoga studio, art gallery) and 3 residential units.  It's definitely not more than 8 hours per month to manage this from a high level.  I have a property manager actually do the showings, but any issues like plumber , electrical is a phone call away.

The only challenge is it's a commercial loan, which requires more down, higher rates and shorter terms.  I went to a small local bank for the loan and it really wasn't' much harder than a convention loan. They used a combination of the rental income, my W2 income and my credit to qualify.

So I wouldn't pay for that "coaching" and use the $40k toward your next deal instead - good luck!

Robert Rixer · Answer

Don't do it. I know this exact model and have seen it from a number of Gurus. They are not outright scams and people do some deals but you almost certainly would have been better off saving the money and profits and doing it yourself.

They call the up front fee your "skin in the game". Years ago when I was considering this, I asked them if they provide capital, sign on the loans or otherwise put up any risk? No, No, No. Ironic considering they were pitching me to have skin in the game by paying their fee.

You won't hear a ton of bad reviews on these guys, mostly because they hold you to confidentiality once you sign on and most people are probably too embarrassed to say they got hoodwinked.

Nathan M kiefer · Answer

50 split- no way.

Olu Efunwoye · Answer

Thank you everyone for your thoughtful contributions. The sales guy almost got it, but my wife repeatedly said no and same is everyone here. I later found out that when I declined their protege program, they tried to sell me a "pre-protege" program, which is basically wholesaling for $1k. I realize that they were just trying to sell me something at all cost and been chasing me with phone calls/text messages.

On that note, I wouldn't mind to have someone more experienced than I am to run my deals through and pick their brains from time to time. By the way, I posted my first potential MF deal here, if you want to take a look: https://www.biggerpockets.com/forums/432/topics/1188181-12-u...

Thanks again for the contributions.

Andrew Hogan · Answer

Sounds like a great sales product for that coach but not a great wealth building product for you.

I'd be wary of these "student army coaches".

There is a lot of free education out there and few hundred dollar courses before you commit larger sums of capital to "coaching"

All the best @Olu Efunwoye

Joe S. · Answer

Several things come to mind.1. The mentor is wanting you to focus on the split instead of the high entrance fee.

2. The mentor wants you to assume that you will be getting a lot of work out of them for such a percentage.

Evan Polaski · Answer

@Olu Efunwoye, I only know a few multifamily coaches, and I am fairly certain none of them ask for 50% of the profits of your deal on top your upfront fee for their course/services.

Now, if this coach is going to co-GP your deal, bringing their balance sheet to secure a loan, investor connections to help raise the money, asset management skills, broker connections, etc to actually get a deal done, then maybe that is worth the share of profit, but most guru's I hear about are available for questions you bring to them, and put you through a generic course, typically with market selection information, basic underwriting education, etc.

I am not sure what help you are seeking.  Are you wanting to start syndicating deals?  Or are you looking to buy larger deals yourself, and simply want to make sure you are not loosing money?

If you want to start syndicating deals, I would be asking questions like:Will you personally be investing in my deals, as a client of yours?Will you introduce me to LPs and vouch for me within those connections?Will you introduce and vouch for me with brokers?Will you co-sign my loans?Will you be helping throughout my business plan?

At the end of the day, I do see a value in the general education side of many of these guru's, but education, if that is all they are providing without actually helping get your business off the ground, is only worth a flat fee, and it is not $540k, as you not this group is asking for.  This all comes from the assumption that the coach is more like your professor and not a business partner taking a semi-active role in your deals.

Evan Polaski · Answer

@Olu Efunwoye, I think there are a lot of ways to get that knowledge, but the best is talking with brokers (both investment sales and loan) and property managers in the market you are looking at.

Given most coaches are going to provide some basic general education, I don't think many are worth it.  If this coach is in your market and knows the key players in the market, has used various property managers and can tell you the good ones, knows the loan brokers, knows the risks of investing on this side of town versus that, knows the tenant base for your area and what they are wanting from their apartments and what they can afford, than I would say a coach (maybe not the one you are interviewing) is worth it.

If your coach is from across the country, and simply going to provide you a pre-packaged underwriting template, a segment on "how to pick a market", and lives in the world of 300+ unit deals, when you are looking at 30 unit deals, I would pass and use the typical 10s of thousands of dollars towards your downpayment.

Olu Efunwoye · Answer

Yes, both summary points are accurate.

Olu Efunwoye · Answer

Yes, this is my primary motivation for seeking more guidance. I plan to do syndication deal as the GP in the future but not immediately. I plan to start with my own fund in CRE before I bring other people's fund. And, no, the coach isn't interested in being my co-GP; that's not their business model. I am actually open to having an experience MF investor that can provide guidance as I venture out on this path.

New to MF investment, coach wants 50/50 profit split. Should I do it?

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