I’ve found the investors, what’s the next step?

Question

Rookie here:

Hey everyone, so I’ve been doing my research on investing. Podcasts, books, forums, etc. I’ve found a few deals here and there just from causal browsing and I’ve sparked the interest of a few investors. Now to be clear, one of them is a friend of mine. The other two in the “investment team” I don’t know. They are stock market guys looking for something new. We haven’t solidified anything yet, it was just a friendly conversation. That being said we’re all looking for the same thing. Trying to find a apartment complex so we can get some cash flow coming in.

Let’s get hypothetical. I find a ten door apartment complex for 500k, I bring the deal to them and they decide they want to move forward. I will most likely be putting 0 money down, so what do I offer to keep myself involved? Can they steal the deal from underneath me? How much of that monthly cashflow should I ask for? What’s stopping me from just hiring someone else to be the property manager?

I wrote this quickly and out of curiosity. I guess the short question is: I’ve found the investors, I’ve found the deal, what do I do next?

Thanks for the help guys! I realize there’s a lot more to this but just looking for some help!

AJ Leman · Answer

Yep - sits your deal. So you want to make sure everything goes to plan.

Paperwork can be handled by the attorneys, but if you’re talking about equity splits it’s up to you and your investors. Currently we are in a deal where we get 80% equity and our investors (who are putting up all the money) are getting 20%. Usually it is the opposite of this with investors getting the lion share of equity. However in this case all the investors are Tapping personal lines of credit for their share of the money, so it’s a bit unique.  Every deal is different so it can be tailored as needed.

AJ Leman · Answer

Hey @Preston Davie,

In my experience the investors don’t have much interest in stealing a deal, or running it, etc. That is where you come in! They are looking to park money. I’m guessing you’ll put no money down because you are finding, organizing, and managing the deal. So your equity is all based on that. They get a percentage for putting in the cash and you get a percentage for all the work you are doing. Even if you aren’t managing it yourself, you’ll need to manage the managers. Best of luck! Hope it all works out!

AJ

Joe Villeneuve · Answer

Here's how I divide the percentages for partners:

1 - I have them (I already did this) list all the roles and responsibilities of the partners.

2 - Show them your list, and combine them into one.

3 - Discuss each of the steps as to what the time/value of each is...and why.

4 - Apply percentages to each based on their value and time involved (again, I already did this)   Note:  Don't have them combine Steps 1 thru 4 in one step.  Make sure they are 4 different steps.   Note 2:  You'll find they will always do two things:  1) They will always start out by assigning 50% of the deal to them, as the finance partners; 2)  When they total up the percentages, the total will be somewhere north of 100% (I've seen as high as 300%)

5 - After the percentages are assigned, and somehow the total is greater than 100%, verify that the ratios between the assigned percentages/role is accurate...then,

6 - Divide 100 by the final percentage totals generated in step #4, and multiply each of the roles by that number.  The percentage total will now equal 100% and the ratios agreed to in step #5 will be intact.

Every partner I ever started out with, assumed they would get 50%...especially the ones putting up the money.  Then the do the above exercise, and realize they are not 50% of the deal.  If they don't, I don't partner with them.

Keep in mind, there are three parts to the financing side:  1) Cash, 2)Credit, and 3) the two combined.  This way there are no overlaps here, but if there is a partner supplying both credit and cash, then that's the 3rd part.  If there are separate partners supplying credit and cash, then there is no 3rd part.

Joe Villeneuve · Answer

Just  few roles:

1 - Cash Partner2 - Credit Partner3 - Property Manager (or manager of PM as stated above)4 - Rehab Manager (this includes finding rehabers and negotiating with them...as well as managing the rehab)5 - Business or Partnership Manager6 - Market Analysis7 - Property Analysis8 - Making Offers9 - NegotiationsNote:  #6 - 9 include deals that never get to # 10 - 1110 - Inspections of accepted offers11 - Closings...and more, based on the specifics of every deal.

Preston Davie · Answer

@Joe Villeneuve very well written, thank you. Could you give an example of roles to assign each person? Including how I would market myself.

Preston Davie · Answer

@AJ Leman

Thanks! I like that “manage the managers”. I never looked at it that way.

So in your experience, how does it work when it comes to the paperwork ?

I’ve found the investors, what’s the next step?

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