Co-Investor Profit Split??

Question

A fellow local REIA member is looking for a money partner, but is only "willing" to split profits 60/40, with the 40% going to the money partner who is putting up 100% of the funds. I know I probably need more specifics on what he/she brings to the table to earn the 60%, but that split seems way off to me. I could see splitting more like 80% to the money partner if the other investor is going to be managing the re-hab. Am I missing something?

Thanks,

Dale

Thanks,

Dale

Chance Housos · Answer

@Dale Moller Let me break it down with numbers to support what others are explaining. Remember, this person did all the leg work to get the deal, put it under contract AND is going to manage the project. All you have to do is finance the rehab and wait for the check.

If the numbers were as so this is how it would look for the investor and for you. The investor is probably trying to build a relationship with a private lender.

purchase:70k

rehab: 30k

ARV: 140k

Closing and selling: 14k

If he went HML, with 12% and 3 points and took 4 months he would pay $7000 to the HML.

If he went with 60/40. He would pay $10,400. He actually pays more to the private lender but does not have to make monthly payments so its worth the extra money for him.

Jeremy Tillotson · Answer

@Dale MollerIf this is a skilled rehabber it could be well worth it. I have done deals similar. I have done an 80/20 split with me getting 80% of the profits. The person presumably could get a HML and keep 100% of the profits (though there would be cost involved)

Joel Owens · Answer

20% to manage a rehab there is really not much motivation  to the investor.

If the gross profit is 25,000 you are talking 5,000 for watching over a rehab and getting it sold.

Sounds like they need a passive money partner that is happy with a 50/50 position.

80/20 is just not realistic for an active versus a passive participant.

Commercial on a syndicate sometimes 25% is taken but you are talking properties worth millions to tens of millions with other fees ongoing and larger back end payoffs.

Residential the margins are much smaller so the active investor wants more of a cut.