"partnering" With Sellers

[Doug Pretorius (ON) 9]

As I work on both a CA and signing up a new investor, I got to thinking about "partnering" with sellers, and I'm curious if anyone here has done this...

 

Let's say the seller has a house worth $150,000 with payments of $1,000/mo. Meanwhile I have a buyer who's willing to pay $170,000 and $1,400/mo.

 

Instead of a) requiring a highly motivated seller to SLO, or getting the option money only in a CA, or c) partnering with an investor to buy it and then turn around and RTO.

 

How about working with the seller and splitting the profit? i.e. I bring the buyer, put the deal together, manage it, and I'm responsible for half of the repairs if the buyer damages the place, and in turn I get half of the option money, half of the cash flow, and half of the backend.

[Sold ! 0]

Not sure, Doug, but from what I am reading and learning here on the boards, you'd be very close to brokering in this scenario. I'm not seeing where you become a principle in the deal, which you must unless you have an RE license. Bringing buyers and sellers together is what THEY do. As an investor, you need to become an principle first and tehn sell or assign your interests in the deal.

 

My 2 cents......I'm sure others will elaborate. :xsmile:

 

Happy Holidays !

[Doug Pretorius (ON) 9]

Rich, my question was intended to be about the logistics of working with the seller, not the legality of the transaction, but thanks for your reply. I will be a principal by way of a SLO.

 

I'm curious as to whether half of the profit is enough inducement for the seller. I would imagine it would be at least to certain sellers. But I want to know if anyone here has done a deal quite like this.

[Kimberly 0]

Rich,

 

Nothing illegal in "partnering" with the seller provided your paperwork reads the right way. It's just being more generous with the seller on the amount of money they receive, and how much "work" they have to do managing their property.

 

 

Doug,

 

I think the profit would encourage the seller. What I'm wondering is whether or not there would be enough profit to make the potential problems of doing a deal like that worthwhile.

 

Maybe Adam has done something similar?

[Adam King (MI) 1]

Doug,

 

Maybe Adam has done something similar?

 

Sure have. I partner with investors to purchase properties cash or on terms. I partner with sellers when I want cash at closing. Nothing illegal about it if you follow your lender's legal requirements and make sure all of your contracts are sound.

 

How about working with the seller and splitting the profit? i.e. I bring the buyer, put the deal together, manage it, and I'm responsible for half of the repairs if the buyer damages the place, and in turn I get half of the option money, half of the cash flow, and half of the backend.

 

What you're suggesting to me is a kind of "you have 30 days to return it" safety clause. I don't recommend that. I would be more willing to partner with investors than sellers in the scenario you're talking about. I wouldn't want to be in a partnership with a seller if something went wrong. But, as you know this is "kind" of the way I do my CAs. I option with the seller and assign it back to them. Then I'm out of the deal.

Hope that helps,

Adam

[Doug Pretorius (ON) 9]

Of course I'm not talking about a real PARTNERSHIP, maybe that was the wrong word to use. All I want is to increase my share of the profit in particular to get part of the cash flow. I much prefer getting a check every month over getting just one.

[MichaelC 160]

How about working with the seller and splitting the profit? i.e. I bring the buyer, put the deal together, manage it, and I'm responsible for half of the repairs if the buyer damages the place, and in turn I get half of the option money, half of the cash flow, and half of the backend.

Sure, Doug, this type of arrangement isn't so unusual.

Doing my typical CA, my preference is to keep the option money, all of it, and get out of the deal and on to another. If for some reason I find myself needing to split the option money with the homeowner, I will then ask for a split of the monthly cash flow, too. So if I put together a deal that nets the homeowner a $200/mo profit, I'm going to try and keep $100. Not a big deal or unusual. A straightforward addendum to the existing paperwork should suffice. Or, if you enjoy fiddling over MS Word, draw up a basic agreement/promissory note between you and the homeowner.

As for splitting the backend profit, I suppose this can be done, too. But that has me thinking if you're going to do that, you're pretty much working a sandwich lease type of deal with the three profit centers. Why not call it as such and keep more of the profits for yourself?

[Doug Pretorius (ON) 9]

LOL good point, we have talked about this before haven't we?

 

Michael, how do you suggest handling the payments when you've got cash flow coming to you? Does the seller send you a check each month? Or the buyer? Or do you collect and disburse the funds yourself?

[Adam King (MI) 1]

MC,

 

If for some reason I find myself needing to split the option money with the homeowner, I will then ask for a split of the monthly cash flow, too.

 

Great idea!!!

Should have thought about that one. Used to do that all the time with my "job".

VERY cool stuff!

Adam

[MichaelC 160]

My feeling entering every CA is that the option money is mine. We're professionals and should be paid as such. Nothing unfair or unrealistic about this.

On occasion, I will run into a homeowner who is either shrewd, desperate for cash, cheap and ungrateful, etc....(you get the point), and who wants a piece of that action. Well, now I've got a decision to make. Do I become adamant and confrontational and insist it's all or nothing? Or, do I try and negotiate a deal we can both live with? There are a number of factors that determine what I'll do now.

First, do I want to work with this homeowner? Some homeowners unwittingly let you know early on it's going to be a rough ride and a rocky relationship. Who needs that? If I get that feeling early on, I'm outta there.

Second, if I look at this property and I know from experience it's going to be a dog to move, for any reason, I'll probably hold my ground. I mean, if I need to spend two months trying to move an unappealing property in a marginal neighborhood, I'll need to be compensated for my time and marketing.

Third, if I look and see a property that will sell itself, so to speak, I'd be willing to share the upfront booty. After all, part of something is better than all of nothing. When this happens and I have the homeowner with his hand out, I start out by explaining that company policy and procedure is that the option money collected from the t/b is how we are compensated. Hopefully, this placates the homeowner. If not, and the deal hinges on the homeowner getting something, and I want this deal, the negotiations can begin. My target is to get the homeowner to accept an amount in the range of what they would normally receive as a damage deposit if they were doing a straight rental. One month's rent, perhaps? If I need to work down to a 50/50 split of the option money, I tell them the only way this can be acceptable is with a split of the cash flow each month. Cool heads usually prevail and we have a deal.

And as for how I collect the money, Doug, no, I don't wait for the homeowner to pay me. That turns me into a collection agency, and I have no patience for that. Ideally, I receive my rent from the t/b in advance, usually on the 28th of the month. However, my rent to the homeowner isn't going to be paid directly to them. As we always instruct, you either make that payment direct to the lender, or to a third party handling the account. This way, I have my money from the t/b in my hands, I keep what is mine, and then I can make a timely payment to the lender. Everyone is safe and happy, and I don't need to be chasing after what is mine.

[Doug Pretorius (ON) 9]

Michael, thanks for the response. Let me make it clear that the ONLY reason I'm considering sharing any of the option money is because the deals I'm talking about doing involve realtors, and I want to get them paid and out of the way right upfront if possible.

 

Now that I really think about it though, keeping track of and handling the payments on all those properties for a measly $100/mo or so, hardly seems worth it.

 

So even though my share of the option money is going to be fairly low in most of these long-distance deals, I am partly compensated by the fact that I don't have to market the house or show it.

 

Meanwhile for my local deals I will continue to work directly with the homeowners and market/show the houses myself, and keep all of the option money.