QUOTE (JNB @ Sep 25 2009, 12:23 PM) First of all thanks Thomas for your insightful reply! This is exactly the biggest question I get from people I talk to. They emphasise the fact that in the worst case they are loosing more than the expert given that the expert is only providing the work or the sweat equity. They the $$ partners don’t really see the value of the amount of work we put in to make the investment work.person A: invest ONLY his money .. and 1/2 h of his time for due diligence (perhaps more ..)
Person B: invests EFFORT, TIME, and EXPERTISE required and the execution of this LONG LIST of tasks here that someone has to do .. and get compensated for:
Investigate location/area of North America to invest in
Investigate location once city or metroplex is selected
(we like "B" areas where value can be created fast... as opposed to "A" locations that are often too pricey or "C" locations where rent increases are tough to realize due to bad tenant profiles and management problems).
Screen/filter potential investment properties using realistic rents and/or expenses.
Write offer on selected property (this may involve multiple offers and multiple iterations since typically not all offers will be accepted).
Negotiate terms and conditions of offer.
Finalize offer.
Set up the legal structure/corporation, and co-investor structure usually via a joint venture or limited partnership agreement.
Select property manager, onsite manager and other professionals (such as tax advisors, inspectors, appraisers, bankers, engineers, roof experts, boiler mechanics) that may be required to inspect the property initially and operate the property on a day-today basis.
Will market, rent, fix up, repair, paint, landscape and/ or enhance said property to standards that expert sees fit to achieve appropriate rent and/or resale value.
Will keep a record of such fixtures, repair material and/or landscaping material expenditures and/or of all other expenses, such as property management fees, subcontractors , onsite managers, taxes, insurance, realtor, legal, advertising and/or related expenses to market, upgrade, rent and later sell said property.
Set up WCB (Worker`s Compensation Board), contractor, Rona, Home Depot or supplier accounts.
Negotiate and set up preferred vendor, supplier and contractor list.
Negotiate with financial institution to obtain, initially and/or later, re-finance using 1st, 2nd and/or CMHC or FannieMae insured mortgages.
Manage all relationships with banks, realtors and/or 3rd parties.
Set up reporting and e-payment mechanism to investor.
Act as the primary interface to property manager, or may manage properties inhouse.
Adjust rents frequently with market realities.
Invest frequently (but not always) personally into the venture.
Sign all necessary legal documents.
File annual or quarterly statements/documents that may be required by various jurisdictions.
Sign required personal guarantees for required mortgage(s).
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is this worth 50% .. yes .. more or less .. maybe 40% .. maybe 60% .. depends on the deal .. but certainly about 50% !!
I have done deals with 1/3 for me/us (I have a team now .. and they all want a share ..) and 2/3 for investors and ALL of them I gave away way too much profit (but of course now cannot change it in hindsight ..)
So, it depends on YOUR perception of the expert`s value / time ! It has to be win/win !
not: win / WIN