Silent partner to pay for Marketing?

Question

I recently had a local individual that I have encountered several times in real estate deals to tell me he likes the idea of wholesaling. He has offered to pay a 2500/mo marketing budget for my business, but I have no idea how to set up a return on his investment. Should I pay him a % of profits? What if I put in my own marketing dollars- would that mess that up? What are your thoughts on how to structure a return for this person as a silent partner? thanks

Jerryll Noorden · Answer

Wait.. this smells a bit funny.

He offers you 2.5K but never even mentions what he wants in return?

Just "ohh  look at you, here is 2.5K for marketing I want to do wholesaling, good luck". There is something missing here..

Andrew Kerr · Answer

Hi @Traci Howell, welcome to BP. When I come across someone that is looking to work with me, I always start with asking lots of questions. Be very open and curious. Find out what their pain points are. What interests them about doing it. What are they looking to get out of it both financially and in terms of life style (maybe they just want to say the flip houses). Is it a one time thing, or do they want to contribute monthly. Do they expect a return quickly, or can they wait 3-6 months or longer.

Then I use all that I learn to help structure a deal. No need to give away the whole cow if they only want the milk!

There are lots of ways to structure this:

-You could give him a referral fee for any deal done that comes from his marketing budget. -You could give him a % of the profits from a deal.

-You could give me a set rate of return. Like say you get 10% return on your monthly after 3 months.

Either way, having someone willing to help with marketing can be a great opportunity. Again, welcome to BP!

Dave Rav · Answer

Got. To. Ask. More. Questions. of. that. person. (period)

Traci Howell · Answer

Yeah, that "Do not be greedy" thing I think a lot of people struggle with. I want future deals with anyone able to do them, so Ill share. The further talks look something like this- he'll pay one month of 2500 and over the next month (maybe 2) we will split all deals that come from that advertising (everything but jv deals) Ill split 80/20. Based on 2500 reaching 4500 people (I did the numbers at listsource and postcard place and signage provider) if that gets a response of .01 % and of those 45 if 10% do the deal and I get it sold at an average of $5000/deal that would be a return of $4000 or %60 return in a 30-60 day span. I think that is about right.

Jerryll Noorden · Answer

I have a partner whom I call Mr. Gold.

once upon a time I asked a question here on BP. ANd it goes a little like this

"If I find a good deal would anyone here buy the house, pay for repairs and we split it 50 50?

the response was:

"HAAAAAA HA HA HA HA HA  You punk. You have no skin in the game, go home."

Skin in the game, SKIN in the game, SKIN in the game...

Laughed at, pointed fingers at...

but one dude.. Mr. Gold, wrote me in pvt and said..

yo monkeybreath, I will do it with you...

We  bought a house fixed it up (and the oddest thing is, I have never even met the dude) He probably looks like this:

...

either way, I made him $80K on that deal. For Mr. Gold 50-50 was good enough because 50% cut is better than nothing at all.

So this is what you have to figure out from him. What is he looking for.

You have to look at the numbers.

How many leads do you get in relation to that budget.

If you were to supply that budget what would be your ROI?

Would you still have an acceptable ROI if you give him 10% of the profits? If sogot o 15%, .. go up till you do not make a good ROI, and then you give him what you feel is worth it.

You definitely want to keep him happy so do not be greedy!

Traci Howell · Answer

Well, it wasn't like that, that may have seemed so because I narrowed down what was said to get information or ideas on how to do such a partnership. This person is a well known and trusted figure in the community. I just didn't want to meet with him with no thoughts, ideas, or possibilities on my end. Thanks for looking out for me, though.

Rachel H. · Answer

@Traci Howell Had some investors offer this up to me as well when I first started out wholesaling. Decided not to pursue the opportunity. Most wanted a large percentage of the deal without doing the work and by just putting money upfront for the marketing. Did most of the work myself with minimal marketing (i.e. door-to-door, cold-calling, etc.). Depends on what the individual is looking to get out of the deals and your comfort level. As others mentioned, ask questions and see exactly what this person wants out of the deals you plan to do together. Besides money, is there anything else they can bring to the table? How long with the partnership last? What if you want to part ways (which happens all the time)? These are just a few questions to ask and keep in mind. Best of luck!

Lucas Machado · Answer

This is definitely a complicated question. It could even have substantial tax ramifications; depending how you structure it. I think perhaps the best thing you could do is reach an initial hand-shake agreement as to how you guys would like to work together, and then make it contractual on each deal.

For example, I work with some newer investors that may need help executing on their deal, either for a buyer network or money for a flip. In this case, I'd sign a joint venture agreement at the start perhaps doing a 50/50 profit split.

Damien Dupee · Answer

@Traci Howell I would second @Andrew Kerr be very cautious and ask a ton of questions. I have had this same scenario play out and a lot of people have unrealistic expectations. Also partnerships that have grey areas typically  come with massive headaches. Last time I checked you specialize in house aches lol. The conclusion of the matter is partnering is great but everyone is not a great fit. Choose wisely. #LEVERAGE

Silent partner to pay for Marketing?

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