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Partnering And Joint Venture Real Estate Investing.

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Kinds Of Returns And Rewards

Chapter N.

The Costs Of Money Vary
Bigger Risks Deserve Bigger Rewards
Partner Goals Reflected In Negotiated Agreements
Make Adjustments When Necessary
Don't Be Greedy

Examples Of Venture Money Arrangements
Who Gets What - Dividing Up The Benefits

Doing a joint venture project with a partner will bring returns and rewards of many kinds to both of you. Five major concepts determine the distribution of those rewards.

The Costs Of Money Vary

The deal maker may be looking at different ways to put the deal together, depending on how much the project can afford to pay for the money. Rewards to the Money Momma / Money Man for the use of money can be structured in a number of different ways, including the following:

Straight Interest Rate Return Per Month
A Percentage Of The Net Profit
A Certain Dollar Amount Of Return
Some Type Of Blended Returns Or Profit
Pool Adjustment
Structuring A Deal With Financially
Different Component Parts

Straight Interest Rate Return Per Month

An example of this might be a 12% annualized return with 1% per month, or an 18% return at 1.5% per month.

A Percentage Of The Net Profit

This could mean a 50/50 or 60/40 split. Let's talk for a moment about a 50/50 split. What's right with it? What's wrong with it? Some folks might say that's the only fair way of doing something.
But, is that 50% of the net profit for Dan before or after including a fee for finding the deal? Do the project expenses include the Money Man's cost of funds if borrowed on a signature line, or do those costs come out of Money Momma/Money Man's 50% of the profits? Who is going to be on the title? To whom is it worth more?

Obviously, when Dan or Debbie is dealing with people who have lots of money, you want them to be very happy. You do what makes them happy, if that is your game plan. So it's 50% of
what? These are all things to think about when you're negotiating. That's a part of negotiating. An experienced deal maker may be able to borrow funds at a far smaller rate than 50% of the net profit. On the other hand, it may be worthwhile to continue bringing super deals to your favorite private bank and splitting 50/50 to keep the money supply coming in.

The house I had on Fay Street was a good example. It was a HUD property, a repossession in a neighborhood selling in the high 60's. We got it for $24,000 and we put about $24,000 into it. We had it bought, fixed and sold within six months. It was a 50/50 deal with a partner of long-standing, where the money comes fast with no hassle. Certain partners I will treat differently, but they get what they need and I get what I need.

"50/50 SPLIT"
Fay Street
$54,514 over 4 mo.   Partner profit $10,934 in 6 mo. or 46.2% annualized
MC got 5K up front,
$2,264 one month later, + $2670 final

I have one partner who likes to roll the dice. Well, he likes a 50/50 deal. As an experienced investor, when I can get people's money at a rate far less than 50 % of the profit, I get more for myself if I don't bring him the deal. This is where my own greed glands come into play. I can get more for myself by going to another type of lender.

Another way to look at it would be to picture a situation where you would be very glad to take 20% of something. Can you think of a possible situation like that? We all have greed glands, and there's no magic about a 50/50 deal.

Kinds of Returns and Rewards - Chapter N (continued)

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