Joint Venture vs Finders Fee and PM

KrisBucci

New Forum Member
Registered
Aug 12, 2018
3
0
1
41
#1
We are new to the partnership aspect of Real Estate, but have been landlords and property managers for for over a decade. This year we’ve decided to engulf ourselves in REI education and really try and make this our new reality.

We’ve started looking at JV’s and recently secured an excellent cash flowing property near Victoria. When approaching potential investors, the common discussion is investors thinking that it makes more sense to give a finders fee and hire us as PMs vice a partnership. When I think about it, I’m trying to see what “post purchase” would I be offering different as a partner vice a PM. Maybe this is because I know we are/will be an amazing PM for any new investor.

Thoughts...
 

ThomasBeyer

Senior Forum Member
REIN Member
#2

Alvaro Sanchez

Ottawa-Gatineau Investor
Registered
Jun 5, 2009
952
148
43
Ottawa
AlvaroSanchez.ca
#3
If you been doing it for 10 years, why do you need others?, do you want to expand your PM business or own more property?

We are new to the partnership aspect of Real Estate, but have been landlords and property managers for for over a decade. This year we’ve decided to engulf ourselves in REI education and really try and make this our new reality.

We’ve started looking at JV’s and recently secured an excellent cash flowing property near Victoria. When approaching potential investors, the common discussion is investors thinking that it makes more sense to give a finders fee and hire us as PMs vice a partnership. When I think about it, I’m trying to see what “post purchase” would I be offering different as a partner vice a PM. Maybe this is because I know we are/will be an amazing PM for any new investor.

Thoughts...
 

Matt Crowley

Senior Forum Member
Registered
Dec 14, 2013
897
417
63
Calgary
#4
No simple answer here. If you want to have a portfolio with different types of investments and operators you will need a combination of different kinds of fees for different purposes. Finders fees / acquisition fees are part of the program as are asset management fees and a back-end promote structure.

Front end fees need to be well supported by investment summaries and research. If there is a PM component, that is in a bit of a different bucket than AM. Any sophisticated investor will insist on paying monthly PM fees and most will require an AM fee as well as both are needed for a complicated piece of real estate.

The more you can push to the back end of a deal, the easier it is to optically understand alignment. But the reality is that you have costs today and a lot of value can be created by finding the right deal so acquisition fees are fine to pay. The finders' fee is usually for someone in a broker role who then steps out of the investment. So if you are transaction focused, that is fine but if you want to build a portfolio that is the wrong fee to charge.

In general, JV's are a pretty poor structure and outside of REIN really are not used in practice. I'm not sure it has the right intent at all with real estate expert and a money person.
 

angelapeng

Inspired Forum Member
Registered
Aug 19, 2011
180
25
18
Vancouver
#5
I have exactly experienced the same thing 8 years ago when I first started raising capital from Joint Venture partners after successfully investing for 5 years. To identify the right money partner is the key here. When I write a blog or meet potential partners, I always make it very clear that my ideal money partner is someone who is interested in real estate investing, but not interested or capable of doing what we do, (buying undervalued property, add value through renovation, furnished and rent them out). If they are active investors, with time, money and enthusiasm, they are not the ideal money partners.

In addition, I always ask them their expected rate of return from any investment products, if I can deliver to them, then we continue the conversation, otherwise, next.

I use the above model many times, the result is I raised 1 million over the 4 years period, some of them are private loan lenders, some of them are equity partners.

I did all these due to one course I purchased from REIN: Joint Venture Courses by Russell Westcott, I religiously followed the system, and it worked.
 
Likes: ThomasBeyer

Matt Crowley

Senior Forum Member
Registered
Dec 14, 2013
897
417
63
Calgary
#6
^ Where is the affiliate link?

joking...;)

Actually working with sophisticated partners is great, especially other professional investors. No one can be all things, and very successful investors, business owners, and developers often use asset management companies and invest side-by-side. It's like a marriage: 1 + 1 has to equal something other than 2. If it equals 2, then you have a silent partner only. If it is more than 2, then they should receive a greater portion of the outperformance.
 

Shane564

Shane Melanson, Developer & CRE Investor
REIN Member
Apr 30, 2015
15
5
3
Calgary AB
shanemelanson.com
#7
We are new to the partnership aspect of Real Estate, but have been landlords and property managers for for over a decade. This year we’ve decided to engulf ourselves in REI education and really try and make this our new reality.

We’ve started looking at JV’s and recently secured an excellent cash flowing property near Victoria. When approaching potential investors, the common discussion is investors thinking that it makes more sense to give a finders fee and hire us as PMs vice a partnership. When I think about it, I’m trying to see what “post purchase” would I be offering different as a partner vice a PM. Maybe this is because I know we are/will be an amazing PM for any new investor.

Thoughts...
Hi Kris,

Here's my $0.02

If you have the skills to find good cash flowing properties- you have earned your way into the deal.

And, if you have the ability to execute on the backend (ie- manage and add value)- then you've got the 3rd leg of the deal.

All that's left is finding the money- and, money is a commodity. Meaning, it's available and looking for a safe place to multiply. My entire focus when I started investing in commercial real estate was finding good deals.

And, when I didn't understand the true value of 'finding great properties' to invest in- I too accepted finder fees.

Here's how one deal went down:

Shane finds a 240 unit class A apartment in Houston TX. I wasn't able to (and didn't have the skill set at the time) to raise $4.5M to purchase. So, I accepted a $200k USD finder fee.

That's sounds good. But, the buyer (who've I worked with and helped for years) made more than 13M in 5 years plus over 10% cash on cash for the 5 years they held it.

If you can find the right deals- fight to keep them. Network and figure out how to get the money. REIN is a good place.

Today, I would never do that. But in 09, I didn't have the confidence and didn't appreciate how valuable finding the right deal is.

Good luck and if you want any strategies on raising money- happy to share my experience.

Shane