All Forum Posts by: Bruce Gardner

Thanks Larry!

Josh, I like your answer and it has caused me to re-think my plan.  What are your thoughts in terms of the risk I am taking on?  In other words, if we do a 50/50 split on equity, and things turn south for whatever reason, I am taking on 100% of the financial risk.  I'm not saying his effort wasn't wasted or isn't valuable, but I'm curious how you would value that.  A few examples:

Example 1: A $150k BRRRR (My $100k, his $50k) - then I put in another $25k for CAPEX/Improvements, putting my share at about 71% to his 29%. We get an ARV of $200k - is this a deal you would consider worthy of a 50/50 split?

Example 2: A $100k investment, all me. Another $40k in rehab (all me), with a $200k ARV. He does all the work, arranges contracting, rehab, listings, renters, etc. Is this also worth 50/50?

Example 1 is easier for me to swallow.  But for Example #2, in a market drop, some major event, and I find my $200k property worth closer to $100k, now I'm $40k in the hole.  He still has a $50k "equity" - was the work he invested worth $50k in equity?

I'm purposely playing devil's advocate here, just want to do what is fair, and since I'm new to all of this, I'm looking to experts like you to help me think through it!

PS.  He's going to inherit everything eventually anyway, ;-)

Andrew, thanks for your reply!  I was already thinking about the dilution part.  However, my dilemma is that I am virtually doing almost nothing other than "investing".  If I were working with an agent/broker, there would just be commissions/fees, and I would retain 100% ownership in the property.  Of course there would be property management afterward, but those would just be paid via cash.  In this case, my son is doing much/all of that (and acting as an agent).  So I'm torn between three different scenarios:

Scenario 1)  I'm the investor, he's the agent - he gets paid for his work, as it's done.  I might be interested in this scenario EVENTUALLY, but right now as I am new and get started, I need his help. So....

Scenario 2)  We're partners - I provide a bulk/all of the financial input, he provides a bulk/all of the "sweat equity", we split ownership - how do we figure out ownership percentages?

Scenario 3)  I'm providing him the money as if it's a "loan", so he would retain 100% of the ownership, and would just pay back his loan to me + interest.  I'm not interested in this scenario.

So my original question was really about scenario #2 - how should we split things up?  His work, effort, and expertise is worth a lot.  But I am also taking on a bulk/all of the risk financially.

I'm sorry if this is in the wrong forum, but I'm brand new here!

I'm trying to figure out a fair way to split deals with my son. I'm a brand new RE investor (haven't even done my first deal yet!), and planning on partnering with my son. He's the brains, lead generator, agent, and property manager of the operation (I trust him completely, he's a rock star), I'm basically providing the money. In essence, he's helping me get started in the business by doing the legwork and finding opportunities, etc. He'd prefer equity in the deals instead of flat out payments or a loan, but I don't know what is fair. Some specific examples:

- If our first deal is a 60/40 deal (my $60k, his $40k)...1) Is his work worth 10% to make it a 50/50 split?

- What about future expenses, e.g., if I have to put in another $5000 to upgrade something (now it's my $65k and his $40k), does that change things?

- If it's a major flip, let's say another of my $50k is added, making the split my $115k and his original $40k, or 75/25 - makes me feel like the original 50/50 is not as fair as what it was when we started.

Is a flat "+10%" fair - so at 60/40, it changes to 50/50. But at 75/25, it changes to 65/35, accounting for my extra money, but also his bonus percentage. Is 5% better, 15%? I came up with that range of percentages based on what an actual loan would be (conventional all the way to hard money), or the fact that it seems the going rate for property management is about 10%?

I am trying to keep it SIMPLE, avoiding complicated calculations, loans, etc. We will be doing both Rentals, Fix&Flips, and BRRRR properties.

No replies yet - I've been thinking about this a little more...what would someone thinks of these ideas:

-  10% equity added - which seems to essentially be what a property management company might charge for their services.

-  1-2% additional equity percentages, as a "finders fee", to essentially mimic what an agent might receive in commissions if I were an "outside" investor.

Thoughts?

Thanks, Marlon!

Hi Everyone!  I'm Bruce Gardner, brand new to the site, and brand new RE investor.  I live in Indiana, and will initially focus on the Indianapolis area, but open to expanding after that.  I have not done a deal yet, but will be working with a partner who will find deals for us that we can go in on together.  Thanks!

I'm trying to figure out a fair way to split deals with my son.  I'm a brand new RE investor (haven't even done my first deal yet!), and planning on partnering with my son.  He's the brains, lead generator, agent, and property manager of the operation (I trust him completely, he's a rock star), I'm basically providing the money.  In essence, he's helping me get started in the business by doing the legwork and finding opportunities, etc.  He'd prefer equity in the deals instead of flat out payments or a loan, but I don't know what is fair.  Some specific examples:

-  If our first deal is a 60/40 deal (my $60k, his $40k)...1)  Is his work worth 10% to make it a 50/50 split?

-  What about future expenses, e.g., if I have to put in another $5000 to upgrade something (now it's my $65k and his $40k), does that change things?

-  If it's a major flip, let's say another of my $50k is added, making the split my $115k and his original $40k, or 75/25 - makes me feel like the original 50/50 is not as fair as what it was when we started.

Is a flat "+10%" fair - so at 60/40, it changes to 50/50.  But at 75/25, it changes to 65/35, accounting for my extra money, but also his bonus percentage.  Is 5% better, 15%?  I came up with that range of percentages based on what an actual loan would be (conventional all the way to hard money).

I am trying to keep it SIMPLE, avoiding complicated calculations, loans, etc. We will be doing both Rentals, Fix&Flips, and BRRRR properties.