My partners insist on paying me. How do I calculate my worth?

Question

Good Day Everybody,

Before I ask my question, I’m going to provide some context so hopefully what I ask makes sense.

I was asked to be a part of a team that flips single-family residential properties in the Atlanta market. We have myself, a local agent, a general contractor, and two private equity investors who put the money in.

I have officially labeled myself as the GSD engineer. GSD stands for Get Stuff Done. And honestly that is what I do- I get stuff done. I help the agent track down deals, I generate call list as well as Cold Call sellers, I find and vett subcontractors with the GC, I research and analyze particular markets as well as specific micro areas within those markets to see what strategy is best to employ,  I collaborate on strategies and systems to implement to make processes easier, I also network and put people together. By the way I do all this remotely from a distance.

Okay, here comes the dilemma.

My partners that I work with appreciate my effort and believe my time is valuable, which I would agree. My problem, Albeit a good one, is that they want to ensure that I am compensated for the time that I spend doing all these tasks. I like making money just as much as the next person, but I am under the mindset that I want to be paid when the fruits of my labor or realized- as in a deal is completed or we go to closing. Something doesn’t sit right with me about being paid for work when the end product is not yet realized.

Am I crazy or should I let them pay me even when results may or may not be correlated with that pay? How would you value your time and the situation?

I look forward to your input?

Will Barnard · Answer

So 3% of a net profit on a flip of say even $50k is only $1500. You intend to spend as much time as it takes to perform those tasks and wait until the end for just $1500? Usually people here I find to be unrealistic with their projections and values over valuing them quite often. In your case, I feel strongly (based on the info you have provided) that your services are being grossly undervalued by YOU. I would recheck your worth in this structure before I agreed to anything close to that low number (in my opinion and perhaps I am missing some facts).

Joe P. · Answer

Account Closed is spot on. Either you work for them, or you're doing work for them and getting equity/profit.

If you truly are a partner, then receive an equity share and percentage of profit commensurate with your contribution to the partnership.

William Coet · Answer

@Adam Scheetz  I'm wondering what your background is and how you developed the knowledge to analyze opportunities.  You could be the most important part of this equation!

Will Barnard · Answer

Agree with David and Joe. You are either a partner or employee, you all need to decide which and pay accordingly. Now, partners can be paid salary plus profit share too so the question becomes, do other partners get salary too or just you? If just you and they all get profit share only, that is fine since your abilities and job function seem to overlap all of theirs (with exception to the money partners).

1-3% of what? of the total sales price at end, the total profit before taxes, or the total construction costs? If you sell a flip for $200k and for your efforts (which appear to be substantial from your list), and where the profit was say $40k, making only $1,200 max seams a tad low to me unless you got 3% of total sales price which would be $6k of that $40k profit (which also is a tad low in my book for your efforts.

Will Barnard · Answer

Fair enough, sounds like you have your game plan and you are ready to put it into action. Just keep in mind that "undershooting" your value right off the bat may make it more difficult to edit that value moving forward. I would be of the mindset to get a bit more from the start for what you are proposing to offer, if the other investors/partners have any clue at all, they will recognize the value you bring and respect you more when you charge accordingly.

Adam Scheetz · Answer

@William Coet Apologies for the delay. My background is incredibly varied. I started in construction at a young age, developed a love for building, then joined the military, started a remodeling business while in the military, am now a military officer. Over the last 2-3 years though, I have really taken a liking to the investing side of real estate. I've developed a knack and liking to identifying trends in certain micro markets that help narrow investors desires to what is realistically available to them. In realizing what aggravates me and others as investors, I used that to analyze and present a product that allows out of state/country buyers to feel more comfortable with their decisions.  Warm and Fuzzies. Through all that, I continue to enjoy the cold calls, talking to strangers, eliciting information from them and identifying their house issues, and working to a solution. Sometimes that's a wholesale deal, sometimes that me handing them over to someone else to help, and occasionally I personally take action on the deal. Really depends. Being that I am at a distance for almost every deal or transaction I involve myself in, I have to capitalize on what I'm good at. Call me an assistant, Birddog, consultant, negotiator, partner, sounding board, or just someone to do the things no one else wants to do. I try to leverage these things to strengthen those I work with or groups I partner with. @Will Barnard I really appreciate that. Believe me, I like money- or at least the freedom it provides- and I certainly don't want to undershoot the mark. I think about it like dating, I don't want to ask to much from a relationship early on. But once it's apparent that my presence is a strong value-add to the group, I won't hesitate to ask for more. I also make that clear early on so that after a few deals there's no surprise when I up my stake. I really am thinking long-term here. $1500 per deal isn't sustainable- I agree. But showing that I am not after money but rather the groups longevity and success is. I think it ultimately comes down to the facts that I am 1) at a distance. 2) Have a small group that really wants me to work with them. 3) And because of the distance, I have to exploit the things I can do best and most effectively. You all rock!!Thank You Very Much!!

Adam Scheetz · Answer

@Will Barnard @Joe P and everyone else. Good insight and knowledge. I've definitely advocated for the partnership and that's seems to be where  we settled. And to answer one of the questions. It was 1-3% of the before tax profit. If I only find the deal and put the pieces together then likely the 1-2%. If I do the negotiations, analyze the deal, schedule contractors, etc, etc, then of course I'd push north of the 3%.

The relationship is still young (less than a year) and I'm letting the deals strengthen it. Later on once repeatable systems and people are in place will be the time for negotiating. I'm thinking long term growth versus quick profit.

Thanks again for your thoughts.

Adam Scheetz · Answer

@Robert White so that was my recommendation. 1-3% depending on the level of involvement for the particular deal. The real struggle is the intangible items outside of the actual deal.

Personally, I like the idea of advocating for the higher percentage because of these intangibles I provide to strengthen the process and business.

Robert White · Answer

@Adam Scheetz

Is there a commission structure in place for once deals are closed?

My partners insist on paying me. How do I calculate my worth?

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