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Updated over 14 years ago on . Most recent reply
What would I have to do to get 30% of your profit?
It sounds ridiculous I know, but I'm dead serious. I know almost nothing about real estate, I live in the only home I've ever bought and before that the only property I've ever rented.
But I know business, and I can write copy that sells. The key to both is knowing what service clients find to be of value at what price point.
So I'm cutting out the BS and using the best research strategy I know. Asking. If you had three wishes that could be granted on your next deal what would they be? Other than funding your deal, what would I have to do to be worth 30% of your profits?
If I brought you a motivated, seller would that be enough? How about if I could get you a buyer in a week? Would you shell out if I could cut your rehabbing costs by 10 percent? Twenty?
Thanks,
Will
Most Popular Reply
NOTHING! That's the honest answer. I can find my own deals. I could find my own buyers if I were in the business of selling houses. Why would an experienced investor give someone else 30% of the profit?
Mike
NOTHING! That's the honest answer. I can find my own deals. I could find my own buyers if I were in the business of selling houses. Why would an experienced investor give someone else 30% of the profit?
Mike
Leverage.
If contracting out work for 30% of your profit allowed you to close twice as many deals it is a no brainer.
What % of their profit do rehabbers give construction crews? I'm sure it's not insignificant. But it is money well spent. It gets the job done faster and better than the rehabber could do it themselves.
No one is good at everything, and the things we are least skilled at we usually take the longest to do, and enjoy doing the least. By partnering with people who are strong where we are weak we can accomplish so much more than we could alone.
I was intentionally creating a headline that had "nothing" gut reaction, so I'll put this another way.
Another investor, one you haven't worked with personally but you've heard good things about, comes to you offering a joint venture where all profits will be split 70/30. What is he bringing to the table that makes you want to say yes to his proposal?
Not to be rude, but "nothing" replies aren't helpful. If you don't think you'd give up a % of your profits for anything then answer this question:
In what part of your business do you most feel like you are wasting time and money?
You eliminated funding, which is the real answer to this question.
Rehabbing is on the order of two thirds labor and one third materials. Rehabbing is only a fraction of the overall deal. The rule of thumb for rehabbing is that purchase plus rehab must be under 70% of ARV. The ratio between purchase and rehab varies widely. But for deals I've done its between 12% and 20% of the purchase plus rehab total. So, 20% savings on the rehab would, at best, amount to 3% of ARV. Would I give up 30% of the deal's profit for a 20% discount on the rehab expense? No.
Wholesales here typically add about $4K onto a $60K deal. That's under 7% of the deal, under 3% of ARV. To me, that's the hardest part, the part I do the least well.
The usual split for a money partner is 50/50. So, funding is worth half the deal. You've eliminated that half, and you want 60% of what remains.
I'll turn the question around and ask what you can do that would earn you that 60%?
Will,
I understand what you're trying to say. I would give 30% of my 'profit' if you found me SERIOUS buyers. However, your inexperience does make me cautious. I wouldn't spend your time asking people what they aren't good at or what you have to do. I would get some education, find some money, do a deal, and find people that you can partner with to negotiate the 30% into the partnership.
I could see the skepticism coming a mile away with your first post, but I get it and I think you're bold for trying.
You find buyers who are serious about rented, cash flowing property in Indianapolis and you can have your 30%.
RyanOD
Fortune favors the bold, the honest, and functional madmen. I might be all three.
Pretend like this isn't a sales pitch. It isn't. I'm not going to turn around and ask you for 30% if you name a service.
I don't really want 30% of your deal (that's a bald faced lie I'll take it the second you offer) and I'm certainly not going to ask for it unless I can offer a service that gives value.
At the moment I can't. I don't know enough about your wants or the needs of your business. The fastest way I know to learn is to ask. You all know this field so being upfront keeps me from looking foolish.
If there was service you'd pay that kind of money for then most of you would happily a monthly flat rate. Especially after I gave my services away to five of you and got excellent reviews. If I can't give that value I'm not going to ask for anything. Once I can give value I'll sell it for less and you'll be my customer for life.
You got the truth but didn't want to hear it. There are basically two groups of people who are in the real estate investing business: experienced investors and newbies.
As I said earlier, experienced investors can do everything themselves (or within their business). If they decide to farm out some of the work, in most cases, it would be much cheaper to just hire someone than to give you 30% of their profit (as Jon pointed out).
That leaves newbies, most of whom will never do a deal. Of those that actually do a deal, the number one thing they need is money and that's the one thing you don't have to give. The other thing they often need is experience and you don't have that either.
So, the real question is what do you have to bring to the table that is worth 30% of the profit on a deal? "Nothing" is still my answer.
Mike
Mike, I've got to say your post made me smile. I heard you, but you are missing my point. I know their is nothing I can do today to be worth 30% of a deal. I know there is probably nothing I can do in six months to be worth 30% of a deal.
This is more in the way of a goal setting exercise. If an experienced investor found some skill worth that much then you can damn well bet I'm going to bust my butt to learn that skill.
I don't want thirty percent of a deal. I want to know what's worth thirty percent of the deal. And look what I've gained buy asking.
I got a breakdown of what an experienced investor thought reasonable in rehab costs. Yes he would of answered that specific question had I asked it, but I didn't know to ask it.
I understand an experienced investor can do everything themselves. They've already done it. I'm trying to learn. To tackle the big problems, the ones that really suck, first.
If someone will tell me what they are I'll read every damn thing I can about them, ask around how people deal with them. Then ask someone experienced for the privilege of doing the the part they hate for them so I can get really good at it.
Once I'm to that point I'll ask around and see what others are willing to pay for me doing it on their deals (I get it won't be that much I netted $3.32 for my first one hundred hours of work in IM and now I'm twenty three, drive a lexus and have no mortgage).
It's my action plan to my first deal
-Learn the crap bits
-Get really good at the crap bits outsourcing them for free from the experienced investors.
-Offer to outsource the crap bits from really experienced investor for some small amount of money (because I know myself and nothing motivates me like getting paid for my work)
-While working their crap bits have the amazing opportunity to be on the inside of actual deals while actually making some money (or magic green motivation paper) and not risking everything I've worked really hard for before I can legitimately say I can do this.
-Then, when I feel ready go for my first deal
I'm asking where the trenches are. So I can wade through them.
Now I understand where your coming from! You want to do the work that successful investors don't want to do. I finished turning a rental yesterday and didn't enjoy cleaning the filthy commode. If you would be willing to move here and wait for my call, I would hire you to clean every commode. It took me about one minute to do so and I would be willing to pay you 50 cents per commode. If you figure that on an hourly basis, that would be $30 per hour, which is far better than the $3.32 you made for 100 hours work in IM! In fact, I'll pay you a signing bonus of $3.33 for the first commode and you'll be ahead of the game!
The point of my silly comment is to show that doing the work a successful investor doesn't like won't help you get on the inside (except maybe the inside of a toilet). Cleaning toilets; hanging drywall; or sweeping floors won't teach you to run a real estate investment business.
Instead of taking this backward approach, why not just read EVERYTHING here on BP that pertains to the area of real estate investing that interests you? Join your local REIA and make friends with the SUCCESSFUL investors in YOUR AREA. Your new friends will be happy to help you (mentor you) for free. I think that's a much more direct way of getting in this business than cleaning toilets.
Good Luck,
Mike
William, not to break your balls here but you're the one who's missing the point. Jon and Mike gave it to you in black and white: the margins just don't work if someone else is getting 30% of the deal without providing any financing. Any way you try to spin it, it won't matter, an experienced investor is not going to give you a 30% cut. The ideas you suggested don't even come close to earning that much. Sorry, but that just isn't how RE works. You're going to have to either come up with your own cash to do some deals, or start out bird-dogging/wholesaling to experienced investors. But be aware that your cut will be less than 10% in most cases
Lol, IM is internet marketing. My first one hundred hours sucked because I tried to figure it out alone. One of my good friends asked a very successful marketer "what part of your business do you hate doing and would it be worth 30% to you if I did it faster and better."
He was told article writing and submission and yes it was worth it. Jim was given six books on the subject and was told if he created ten killer articles he had the job.
He got the job, learned from a master, and blows my very respectable, weekly average out of the water. Literally by a factor of ten.
So I decided not to reinvent the wheel. It worked for one maybe it will work for all?
And Cory re-read my last post. I'm sorry the thirty percent thing is throwing people off. I'm willing to do crap work for free (if I get to see the whole deal through and have all my millions of questions answered.)
Originally posted by William G.:
I did read it but honestly successful investors are busy people. They will get kind of annoyed if you keep inundating them with questions and it won't be worth it to them-they could get a contractor or laborer to do whatever you're doing for cheap and not have to deal with explaining themself every step of the way. I really can only see that working if you happen to have a close friend who is an investor. Otherwise, they'll get tired of being bothered.
Instead, join an REIA and do some reading on here and maybe try to start wholesaling deals - it's a good way to learn the biz and get started without requiring a lot of capital. But it doesn't work in all areas.
I wouldn't mind splitting profits providing you have a viable plan of action and can deliver but because you are new to the game you lack credibility it's going to be hard to trust you and rely on you.
You will have to prove it to us that you qualify to receive a split or a share.
If you're trying to figure out what 30% of the profits are worth, consider that I do about 25 flips a year without spending much time at all on the day-to-day aspects of my business (other than setting strategy and some other longer-term tasks); this means that I hire out nearly all the work I need done to keep my business going, day-to-day.
The total I pay my employees is about 25% of my net profits.
Therefore, I can essentially hire out 95% of the work needed to run my business day-to-day for 25% of the profits.
So, I'm not sure there is anything I would pay 30% for, unless you could do everything my employees were currently doing, PLUS generate additional profit for the business at no additional overhead to me personally.
And if you could do that, I'd be coming to YOU for advice... :)
Basically, there are two ways for you to make it worth an investor's time and effort. You either need to bring cash (not necessarily yours) or a good deal to the table. However, in order to do that you need to understand how the business works. Learn as much as you can both online at a local REI group. Attending the REI group meetings will go a long way in educating yourself as well as introduce you to your potential future partner. You sound like the kind of guy that will immerse himself in the education process necessary to understand it. Do this, then create a plan to bring something of value to an investor.
Originally posted by J Scott:
The total I pay my employees is about 25% of my net profits.
Therefore, I can essentially hire out 95% of the work needed to run my business day-to-day for 25% of the profits.
J.
I kindly suggest you revisit how to read an income statement. I think I understand what you mean here, but you have butchered some important terminology.
-K
Originally posted by Kirk B:
I kindly suggest you revisit how to read an income statement. I think I understand what you mean here, but you have butchered some important terminology.
Yeah, yeah... :)
I managed an 8-figure P&L for Microsoft for many years, so I certainly know how to read and write financial statements...that said, I was just trying to water down my explanation for people who might not have much financial accounting experience, and I did a pretty bad job... :)
I didn't want to assume that people understood the difference between cost of goods sold and operating expenses; this can be especially complicated in a business such as flipping houses, where certain expenses (like salaries of those who work on both the houses and general business tasks) can be difficult to characterize as one or the other.
So, I should have said that salary expense (outside of COGS) totals about 25% of Operating Income; though total employee cost (including that attributed to COGS) is a somewhat higher percentage of Operating Income, as I have employees do some of the rehab tasks on my projects and I also provide some benefits.
Thanks for keeping me honest!
I would pay another experienced investor 30% if they brought a qualified buyer to the table and handled the entire sales transaction so all I had to do is show up and sign.
I would knock 30% of my purchase price to someone who bought several homes from me (care to buy some?)
But I wouldn't pay you anything as you have not demonstrated any skills of value yet - and if you approached me - and you had the skills - yet you never answered the questions I asked of you directly - I wouldn't pay you anything either.
But if an experienced investor who wasn't annoying to work with brought a buyer to the table and all I had to do was sign and walk - I would pay 30% for that.
Originally posted by Scott M.:
This is what I pay 6% for...3% to my agent and 3% to the selling agent...
Even if the selling agent doesn't do a very good job, my agent will do both jobs for her 3%... :)
Truthfully, there's nothing. I have no problems finding deals. Any aspects of operating the property from acquisition to disposition, we've got covered.
That's not to say you couldn't be any help; I'd consider co-oping 20% of my commission if you brought me investors that I wouldn't have found myself.
I would pay (share, split, partner with) at 30% split for anyone who closed a deal with me cash tomorrow.
I can find deals falling asleep. Finding people who need an alternative to CDs, Bonds, Stock market crap and really want to buy is another thing.
In a down market the man who gets you out of your "equity" and into a cash position for the price you think is reasonable is the person I'd do 50/50 with all day long....come to think about it, thats how I landed a 40K 6 plex last month.
People overlook partnering, but I guess its all how you look at it. Find me someone willing to give me cash for the homes I own at the prices I'm asking and I'll be a millionaire (minus 30%).
JG
I would pay 30% of net profit on a wholesale deal if you brought a capable buyer, or brought me a good deal.
I agree with some of the points, and I skipped over alot of them.
I can see some people not wanting to give you 30% of a deal for certain things, but there are certain things that have 30% value.
Again, these things would have to be demonstratable as mentioned
Very simple.
I would gladly pay you 30% of the profit if you somehow increased that profit by more than the 30% I was going to give you. I'll pay you when it results in more money in my pocket for me.
How do you do that? If I knew, I'd just double my profit by myself and I wouldn't need you.
Maybe you could put together a complicated deal, a 3-4- or 5 way trade, or bring a special buyer who needed a specific property and would pay big time to get what he wanted.
Heck, bring me some buyers who will pay top of the bubble prices for the places I have for sale, and I'd be happy to pay you 30% of profits.
It's business. Increase my profits by enough and I will pay generously.
Originally posted by William G.:
In what part of your business do you most feel like you are wasting time and money?
Actually, William, those replies ARE helpful. They're telling you that your prospective clients aren't willing to give you what you want.
Your plan (doing something that busy investors either don't want to do or don't have the time to do) is solid. Your plan to have them pay you 30% of the profits is not so solid.
I'm a Realtor. Our referral fees (when we hand a deal to another Realtor OR when we send a client to another Realtor) is 25%. We get paid, on average, 2.4% of the total sale for bringing a buyer and 3.6% if we list the property and sell it to somebody else. This is before a commission split with our employing broker, often 50%.
So let's do round numbers. I list a $100k house. 3.6% of this is $3,600.00. Our broker takes 50% ($1,800.00). We toss in our costs (signs, newspaper/internet ads, printing/copying, etc.) and any other fees our Broker attaches (mine is a 7% administrative fee). Let's assume I got away cheaply and only had $200.00 in costs.
$3,600.00 total commission
Less: Broker split of 50%: ($1,800.00)
Gross Commission to me: $1,800.00
Less: 7% Administrative Fee: ($126.00)
Less: My costs: ($200.00)
----------------------------------------------------
Net Commission: $1,474.00
If you procured the buyer as a Realtor, you already got 2.4% ($2,400.00) gross commission. That's way more than 30% of my $1,474.00, or $442.20.
Also, keep in mind that it's illegal for you to be paid as a Realtor if you are NOT a Realtor. Check out a Federal Law known as RESPA, or the Real Estate Settlement Procedures Act. As per Federal Law, I can't pay you anything for helping me find a buyer UNLESS you are a real estate licensee.
So get licensed.
Or, you can work for me or for my broker as an assistant. Just keep in mind that you can NOT be paid based upon production. Flat rate ($10/hr or whatever) ONLY.
That's the law.
You've got drive. That's GREAT! But you need to reformulate your plan.
Mike
The main item I waste a lot of time on is getting funding. You put up 30% of the purchase price for an investment property and I will manage and run the property for you. With a 70/30% split perhaps we could make some deals on a few mobile home parks ?