How to structure a Deal for Win-Win

[Vinay Nair]

I have 5 years of experience with REO investment and have done well. Most of my cash is exhausted and I have just some left. Recently I was approached by two investors who were following my success for last few years and asked me to invest for them. The proposal is to invest $250k each between 3 of us including me with my $250k. Total $750k. I will be the decision maker on buy and sale and will be spedning time to locate investment. These are single family homes being bought, rehabed and to be landcontracted to buyers. So lot of work involved.

Can anyone suggest innovative way to structure the deal so that I get compensated for my expertise and time since all 3 of us investing the same amount and is also fair to additional investors ?

[J Scott]

I'm a big fan of:

- He who brings all the money gets 50%
- He who does all the work gets 50%

Given that, you should get 50% interest in the $500K they bring and 100% interest of the $250K you bring. So, you should have about 2/3 interest in the total profit, and they should split 1/3 interest in the profits (1/6 for each of them).

That may sound like it's highly in your favor, but given that you're taking 1/3 of the risk and doing 100% of the work, that's the way it should be.

Another way to structure it is as a loan -- pay a fixed percentage to borrow the money and give them first lien position on the properties.

Given the historical numbers in my business, option #1 above would return them about 15% on their money. And I'd be willing to pay about 10% for option #2. But, option #2 is much less risk, as it's debt and they are secured by the property, whereas option #1 is equity and they are sharing in any risk/loss.

So, overall, the numbers seem to work both ways...