I have found it very difficult to attract investors versus partners.
Currently I have found a great buy with great cash-flow. The only downside of the deal is the buildings are not occupied so I would need to find the new commercial tenants. Which Im good with.
There is a small amount of reno that would be needed but not much. This would be the other concern. Although I can afford the buildings, the reno could be an issue if it falls to far out of budget.
When I approach potential investors I always get the “we will split it” conversation. I’m ok with this but I feel I perhaps work better alone, but on the flipside I could always use the help of a partner. Besides I want to graduate to having investors rather then partners…
The question I have is how to have the investor conversation (and they want to be an investor), and how do you pay the investor for the investment. Lets say a building costs 200k, and the investor pays half, does he get half of the profit monthly then? What are typical arrangements?
You don't say what your real estate investing history is although you refer to this property as needing commercial tenants?
To go from the “Partner” conversation to the “Investor” conversation takes time, hard work, best efforts and building a reputation and track record.
The way you talk, present yourself, show knowledge and exude confidence is all part of going from “Partner” to “Investors”!
Don’t be afraid to have a contractor give you a repair estimate, if you can later beat it or handle it yourself all the better but you at least know you can make repairs / complete rehab with that bid price as a set budget.
For most investors it’s all about returns but it also depends on the project (Residential or Commercial) the scope of work, monthly hard and soft cost’s, project ability to service debt and pay expenses and what kind of exit strategy you choose and how far out in time that exit will occur!
In a single family home I give my investors 30 to 35% depending on project, if I need a partner then 50 / 50 is pretty standard. If I am working on something where we will have “No Mortgage Debt” but will raise enough money to buy the project in cash I generally figure enough percentage where every investor earns 8 to 12 percent per year minimum depending on risk.
If your buying a $200k property most partners will expect you to get “Hard Money” for 70 or 75% and split the balance of down payment and rehab cost’s! If you simple get an investor for the same project you might get 100% of the cash you need and only have to return principle plus 30 to 35 percent.
Arrangements are flexible and can vary project to project; you just need to determine what your doing and how your doing it?
Partners can bring cash to the table if you don’t have enough, they share the risk on a venture and can also provide mentoring or advice. A good partner, in our experience, brings something to the deal that you don’t have.
Some people have the expectation that real estate is their ticket to overnight wealth. Or they think that just a couple of deals will give them enough cash flow to retire on, but the techniques that can create giant amounts of cash flow or that are more instant in their wealth creation are extremely high risk gambles that pay off for only a few.
How do you have great cash flow on a property that’s vacant?
Have you ever leased to commercial tenants?
Why is this property vacant?
What experience do you have in commercial RE?
Do your potential partners have any experience in commercial RE?
If yes, partner with them and learn what you can from them.
Starting out you might give 50% split with a partner that provides 50-100% of the project money with you doing all the work and management.
Make sure everything regarding the partnership is in writing.
Once you have experience, you will be able to woo more investors than partners.
The technically terms here are limited liability partner (Investor) and general partner (Partner). As the name suggested, an investor has limited amount of liability in the company. Their main purpose is to stand on the side and invest money into the company. A general partner has full responsibility of the company, so when things turn sour, the captain go down with the ship. Both invest money into the company, but a general partner is the one who run the company. He determine what the company must do ad how to do it, the investors will approve of his plans and offer assistance only when he needed it. Active investors are your general partners or general members (along with you) of a limited liability company.