Incentives for your core four?

Question

Hi everyone!

Thanks for letting me in your community, I’m a prospective REI in the Columbia SC area. I want to BRRRR/Flip to start and then get into buy and hold or STR once my capital builds.

I’m building my core four and I’ve always been the kind of person who wants to incentivize people around me who are helping build wealth by being generous and abundance minded.

For my buying agent, since I want to buy distressed properties that have low value (and low commissions), I wanted to incentivize with the following:

- If I BRRRR and my property refinances for more than I spent on it, my agent gets a large percentage of the extra capital up to the maximum amount of the fee they received for selling the house (meaning they could double their commission). A lot of the houses I’m looking at are around 100k so my agent isn’t looking at a big commission if I pay them the standard way.

- If I flip the house, which to me is a less attractive option, my agent gets exclusive rights to list the house as a seller. They double their fee on the same house this way but since it’s less attractive to me this perk requires more effort on their part.

Does anyone else have similar perks for their core four? What do you think of this idea? How do you incentivize contractors apart from referrals?

Thanks for your time reading and answering this, I look forward to connecting!

Mark Munson · Answer

Hi @Justin Stanford

It's very altruistic of you to want to incentivize them further, but I don't think that is necessary. And, I'd argue, you are actually doing them a disservice in some cases. In the case of giving the realtor the listing on a flip, that's a good idea. However, I would not give them a cut of my BRRRR. You are thinking too transactionally and not about the lifetime value of your relationship with them. If you are able to keep more money in your pocket, that just means more commissions for them down the road. They'll be compensated fairly over time, they don't need to be incentivized further on every transaction, as that will slow your ability to scale. If you truly want to incentivize your realtor, then offer JV opportunities. As for GCs, offer to pay them extra if they finish sooner than the agreed upon timeline. And that can work both ways. If they are beyond the agreed upon timeline, you can also have punitive incentives. I'm not saying to do the latter, but the extra pay for finishing early is always a good idea. Feel free to reach out if you need any further advice.

Edward Zachary Samperio · Answer

It's great to see that you want to incentivize your core four team members. Offering incentives can help keep your team motivated and dedicated to your project, and it can also help you build long-lasting relationships with them.

Regarding your incentive plan for your buying agent, it seems like a reasonable approach to compensate them for their work on low-value properties. The first incentive for the BRRRR strategy is quite generous and can motivate your agent to help you find properties that have the potential to be refinanced for more than you spent on them. Just make sure to clarify the specifics of the incentive plan and put everything in writing to avoid any misunderstandings or conflicts later on.

For your contractors, one way to incentivize them apart from referrals is to offer bonuses for timely and quality work. For example, you could offer a bonus if the project is completed ahead of schedule or if they exceed your expectations in terms of quality of work. This can help motivate them to work efficiently and to a high standard.

In addition, you could offer loyalty bonuses or long-term incentives, such as a bonus after working on a certain number of projects with you. This can help build trust and loyalty with your contractors, and they may be more willing to work with you in the future.

Overall, incentivizing your core four team members is a great way to build a strong team and help everyone achieve their goals. Just make sure to communicate your expectations clearly and put everything in writing to avoid any misunderstandings.

Mark Munson · Answer

I honestly wouldn't try to navigate against theoretical fears or scenarios like this. You are wasting effort and time to avoid the chance of inconveniencing someone or creating perception that doesn't exist and may never exist. This speaks to your character as a good-hearted person no doubt, but this is business. It is the realtor's job to make offers on your behalf and answer your questions. Just be upfront with them and tell them exactly what you are saying here, they'll either understand or not. You'll find the right fit eventually. I work with hundreds of investors every year, and I can tell you I prefer the newbies that ask a million questions because eventually they'll understand exactly what they need to look for and do.

Edward Zachary Samperio · Answer

It's understandable to be concerned about coming across as more trouble and risk than you're worth as a new investor. However, offering a generous incentive plan for your buying agent can help motivate them to work with you and help you find good deals.

That being said, it's important to ensure that your incentive plan is sustainable and won't put you in a difficult financial situation. You don't want to offer incentives that are so high that you can't afford them, or that would require you to put your second and third deals on hold.

I suggest revisiting your budget and financial projections to determine how much you can realistically afford to offer as incentives. Additionally, you could have a conversation with your buying agent to get their feedback on the proposed incentive plan and whether they think it's reasonable.

Remember that building a good relationship with your buying agent is important, and being transparent and open about your financial limitations can help build trust and foster a positive working relationship.

Overall, offering incentives can be a powerful tool for building a strong team and achieving success in real estate investing. Just make sure to do your research, set realistic expectations, and communicate clearly with your team members.

Incentives for your core four?

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