Partners And Losing Money
I am looking to bring in a partner on a project. He would be putting up the cash and using his credit to obtain a loan. I would completely manage the deal and he would be very much hands off.
How do I answer the question of what happens if the deal loses money? He realizes the probability of that isn't likely but he still wants an answer from me.
I explained it that he is putting up money and I am putting up time. I'm putting my time at risk if it doesn't make money and he is putting his money at risk. If the property loses he'd lose his money and i'd lose my time.
Sound good or do you others have a "lighter" way to explain things
Hey,
The only aspect of this I can comment on is that if I am a private cash investor, quite frankly, you losing your time = a gain in your knowledge, experience, which is positive. If I put up the money, I gain experience to think twice about giving you my money in the future, and I lose money.
So your explanation is inequitable, and I would steer clear of that way of handling his objection.
I wish I had more advice, but all I can say is push yourself to be creative with handling this objection, come up with TEN ways to handle it, no matter how much of a stretch that is, and post back here with your five best, and have folks comment on your work. Good luck, Dave
Is he taking out a loan or just putting up cash? Who will be responcible to make payments on loan? if any. Who will be taking care of carrying costs? Who will be buying material? What is split? I have been in your situation once, and only once. I became "partners" I had the money (cash) They did all work and paid for materials and holding costs. We backed out my original money, their materials, holding costs. They did not get paid for work. Then we split 50/50 at the closing. I did not like the situation and would not do it again.
This actually turned out to be very profitable for me.
So you need to lay out the steps and at what stage what costs are being projected. This will let you know if it could be a bad deal for your partner. And also the worst case scenario for return on money.
Lori
[addsig]
Lori,
What was wrong with the 50/50 deal? I mean, you didn' t like it, and I assume the reason you didn't like it is because you weren't satisfied with the percentages. Or was it something else?
He is taking out a loan and putting up the down payment and holding costs. Although the rental income should pay for the mortgage payment he is responsible for all money cost.
I am negotiating the establishment of a party wall regime and will work to sell the units.
The split is 49% me 51% him....I am president but if he is unhappy he can outvote me and take over the company. He can't screw me out of profits though because I am a 49% owner.
Thanks
Are you forming a corp for this deal? If you're president, it sort of implies that. If so, just make him a director - title company requires resolution of board of directors to sell the real estate @ closing, and you won't be able to close on the property if all directors don't sign off. But that's just protection of his interest - it does not address losing money issue. If you want to be generous, tell him that you will give up your share of profits from the next deal to compensate for his loss
I appreciate the response. The deal is really an excellent deal and the jitters stopped after I told him I wanted a firm answer as I had 2 others willing to partner with me.
All seems to be moving forward. THANKS
Quote:
On 2004-05-06 13:23, compwhiz wrote:
Lori,
What was wrong with the 50/50 deal? I mean, you didn' t like it, and I assume the reason you didn't like it is because you weren't satisfied with the percentages. Or was it something else?
I didn' t know if the work was done properly, I just like to know what is going on. Once the people bought the house, I found out a couple of things "looked nice" But the work was shoddy. Some people are in it for the money only, I like the money but I also like the fact that most people that I do loans for or buy a property from me tell their friends and family about the great experience they had. I get many refferals from satisfied customers and that was the only deal I didn't.
I made a huge some of money mostly because the material costs were so low. Which as I'm writing this I am realizing the work and materials were probably cheap and cheaply done.
Lori
[addsig]
Quote:
On 2004-05-06 13:56, myfrogger wrote:
I appreciate the response. The deal is really an excellent deal and the jitters stopped after I told him I wanted a firm answer as I had 2 others willing to partner with me.
All seems to be moving forward. THANKS
Good job
and good luck
Lori
[addsig]
If your deal were to go sour, then your "partner" would have noone to blame but himself for not following up on his money. I know that sound crude, but if he is willing to throw money into an investment without fully investigating the risk to reward for himself, he can't really say much huh? If he wants to stay out of things so bad, have him loan you the money for points. You'll make a lot more, then pay him back as contractually obliged. Win/Win
Now, if all the numbers have been presented and accepted, everything checks out and he likes what he sees and the deal then goes sour - as a businessman who looked into what he was putting his money into and taking into consideration your a professional and your private lender knows you know what you're doing - it is then obvious that the situation just went bad as some do occasionally. That is the risk.