SPLITTING DEALS WITH MONEY PARTNERS
Like most young investors, I began my career splitting the profit on deals I’d found with my money partners. Money partners are by far the most expensive partners so you should try to get more out of the money partner than just the money.
Example, if you partner with a practicing Doctor, you get the money and nothing else. If you partner with the top real estate investor in town, you get the money, all of his network, and one Hell of an education! You see the difference?
When considering a money partner the first question is, “Do I need them?” Never use a money partner if you can find the money cheaper elsewhere. The only time you’d use a money partner otherwise is if you’re doing the deal to rub shoulders with a professional investor you’d like to emulate some day.
Like most young investors I know, the typical split ends up being set up something like, “I’ll bring the deals and do all the work and you bring the money and we’ll split 50/50.” On quick flip or rehab & flip deals this arrangement might be ok for awhile but if you’re partnering like this and your “Owner Financing” the sale, you could be in for a rude awakening.
If you do “Owner Finance” deals with a money partner you’ll be doing all the work and sending them checks for years and years so I’d suggest a split more in your favor:
• 60% – 40% (at least) because you have all the overhead for that business; office space, phones, printers, copiers, bookkeepers, paper, pens, websites, software programs like NoteSmith for collecting mortgage payments, etc.
• My personal first choice is that you and you’re JV partners agree to sub out collections to a third party like MoatNoteServicing.com. They charge a small set up fee + $35 per payment collected + late fees.
• If you’re doing the collections, YOU should get the $35 per payment collected + the late fees. “Collecting” is a job that never ends.
• JV partner is to pay half of all eviction/foreclosure expenses as they come due; attorney’s, filings, Labor for FE&Ds, make ready, etc.
• Also, the JV partner should not expect to get paid when payments are NOT collected.
• Last but not least, if you do have to foreclose on the property, the JV partner should agree to pay you a “RELOADING FEE” for finding a new buyer and going through the closing process “reload” the house with a new buyer. I suggest 50% of the down Payment and the other half split 60/40 as per your partnership.