Finding an Equity Partner

Need that last little bit of cash so you can accelerate your business?

Find an Equity Partner!

The evening is young and you find yourself at a nice restaurant. Nice table, back corner table, and your date is looking beautiful... You have a perfect place setting, silverware is sparkling, napkin placed squarely on your lap, A1 and Worchester sauce sitting at the ready, salt and pepper front and center, but you just don’t have the Stake(yes, this “stake”, not steak)!

While the process of buying a rehab contains seemingly simple steps, it is seldom easy. When you spend your time digging in the MLS or peppering your Wholesalers or Bird dogs to find deals and you finally land on one, offer gets accepted, financing option comes through, but then the after repaired appraised value comes in too low!

Now what! Everything was set, now you are scrambling!

One of the things I love about this industry is the people. In the network you’ve built, in the groups you’ve gone to, or contacts a mentor may have, there is someone with that ability to partner on this deal with you.

One misconception is that every “partner” deal is a 50/50 equity share, rarely is this the case. One of the two partners in this deal will inevitably bring more to the deal that the other. If you employ this tactic, one of the easiest ways to work a fair deal is to spell out what each of you is bringing to the table.

Two questions to ask yourself and your potential partner are:

1)What percentage of the funds needed for the deal?

a.As a borrower in this example we started earlier, use that amount as what you are in the deal for, as this is your responsibility.

2)What skillset of value is being brought to the table to help get this deal or rehab done more quickly?

a.Who is or has found the contractor for the rehab?

b.What other vendors? i.e. Insurance agent, Property Manager, Realtor, etc.

c.How much value does that add?

These questions get you started and with each deal there are different details and questions that need to be considered. One of the most important considerations is the answer to this question; where is my threshold for losing this deal? This answer will set your expectations and limits for your equity share/split deal. Remember, 100% of zero is zero. Don’t lose the deal because you are being a little greedy, find that value in who is in the deal with you.

Most of the time these deals get done very quickly in concept when both parties are realistic and not greedy. If you have been in the Real Estate Market for just about any amount of time, you’ll have already found the investor that wants all of the deal for little investment. However, there are people out there that want you to succeed so they can succeed.

I am not attorney or financial advisor. With that said, this example should be tightened up with the right documents and legalese.

HAPPY FLIPPING!