What Are You Paying Consultants, And Finders' Fees?
I'm just starting to help a friend raise inventor funding for his upcoming condo development. We need to raise $7 million in private investment funds for a $19 million, 250-unit development - the rest will be bank financing. He, having always used his own money and bank financing for his past, smaller projects, doesn't know what is typical to pay for finder's fees to those that bring in the funds for referrals to their investor friends. Anyone have a rough estimate? Thx.
Also, a realtor that is a part-time developer (in another state), may be brought on board as a consultant. He is asking for a small equity share in the development. That is probably asking too much. What are you paying your consultants, or those that give valuable information?
Thanks much for your insights. :-?
Adam,
On the fourth of next month I'm going to Terre Haute Indiana to pick up a friend of mine there from the federal prison. He's getting out at the end of his 3 to 5 for selling securities without a license for raising money from private investors. Before you start worrying about what to pay those who refer "their investor friends" to you (also an illegal act if those investors are not qualified) you should back up and read the Securities and Exchange Act as well your state's "blue sky" law as well as the "blue sky" law of what ever state you accept investors from.
That said the normal fee for raising privately placed capital is about 10%.
King:
Thx. I have looked into it a bit, and it looks like this project isn't covered under securities law because of its size, i.e., the number of potential investors. Securities laws seem to cover projects once they reach a certain number of investors (but, off the top of my head, I don't remember what that number is), and this project falls below that number of investors. Securities laws also cover public offerings, and this is not a public offering - investors' proposals all mention that this is confidential information and is not for public viewing.
But I will look into it further, and will look more into these "blue sky" rules.
Thanks again.
Hello,
I happen to be in a similar place where people are asking for me to help them find funding for large projects, some are not for RE, some are.
One of my neighbors is a securities fraud investigator and when I asked for his advice, he told me if you are paid based on the amount recieved as in a commission, you are violating the securities act. However, if you are a paid consultant for business, you can charge whatever you want. BE CAREFUL!!!
I have backed off of 2 multi-million dollar projects until I get my consultants contracts worked out. I will be reviewing their business plans, etc. and providing them with designs for their offices, networking events and the like. My fee will be based on those things, not on the amount recieved for funding. You also need to have them give you a contract to that effect. Get a securities attorney to help and CYA!!!!!
If you decide to proceed after speaking to the attorney and get the contracts ok'd and signed by all, you give the people seeking funding the numbers of the investors and let them deal with the rest from that point.
Good luck. The money is there, but you need to watch out or as it is said:
"Don't meddle in the affairs of dragons, for you are crunchy and taste good with ketchup!"
Again, thanks for the responses and info. I will use this info wisely.
Good luck in all of your endeavors, too.
In case anyone has any interest in this thread, it turns out that this offering is exempt from securities laws for a couple of reasons: Less than 35 investors will be brought on board; and everyone will be an "accreditied" investor, meaning they will sign a form stating that they are knowledgeable about investing, and they are worth at least $1,000,000. This is all per Rule 506 of Regulation D under The Nat'l Securities Markets Improvements Act of 1996.
Why doesn't your friend pre-sell the condo's and get a 50% deposit from the buyer. This should eliminate the need for private investors and allow him to go with a construction loan from a bank.
I have actually already presented this idea to him, among other ideas for raising funding to avoid investor income. With interest rates the way they are, it seems bank funding should be a big focus, and if money has already been pulled in through presales for a 20%+ down, then why not skip the investors (who will need at least 20%/year+ to get them in to begin with).
Only a thought. But I find that Venture Capitalist types love these kind of deals. I have just been offered a fair hunk of money to give a 25% interest to a venture capitalist. He has broken away from his group to do this on his own. I will probably take it because it creates a comfort zone. Usualy we run really tight at the beginning of a project. No movies, no restaurants other then McDonalds. Go everywhere in the pickup truck and look and act the part, you know the funny shoes, a baseball hat. the Skillsaw and the funny belt with pockets and tools. Still cannot spit on a nail prior to slamming it.
the prior sale of condo units is an excellent thing. Only problem in this area is that they all just wish to put 10% down and thats it. Does not produce enough fundage.
Hope this is helpful. Lucius
I guess that this thread has drifted a ways from the original topic, but I like the way it has moved. I appreciate everyone's input, especially since he will be bringing me on to work on the project with an equity share for me due to all of the work I've put in so far (and I haven't asked for a dime yet - yes, I know, I need to get his promise in writing soon.). So I definitely have a vested interest in how this thing rolls along. I'm offering suggestions based upon your posts. Thanks everyone.
I just re-read my first post: Does anyone have any info on what might be a "normal" figure for paying a consultant? Really just someone to be available to answer questions over the phone when they arise. My buddy is thinking about paying $250/hr. for this advice, to be paid in $1000 increments. Either party can back out of the relationship at any time for any reason. But he is unwilling to offer, as this consultant would like, an equity share in the development.