Whenever an investment group does a deal, there is always a question of who gets what out of the transaction. Some put in more money than others, some do more work than others. It wouldn't be fair for everybody to get the same share.
OK then, what would be fair? This is a question that MUST be addressed prior to starting on the deal.
As Bill O'Reilly says, "not to do so would be ridiculous."
Let's look at a representational "deal."
| PROFIT DISTRIBUTION - Level 2 | % | Amount | |
| |
| TOTAL PROFIT | $100,000.00 | |
| |
| CAPITAL | | | |
| Find Capital | 5% | $5,000.00 | |
| | 0% | $0.00 | |
| Capital Investor/Loan Guarantor | 35% | $35,000.00 | |
| |
| WORK | | | |
| I. ACQUISITION | | |
| Find Deals, Initial Stage for Deal Evaluation, Bids | 8% | $8,000.00 | |
| Offer and Negotiations | 3% | $3,000.00 | |
| Complete Deal Evaluation | 6% | $6,000.00 | |
| | | |
| II. MANAGEMENT | | |
| Oversee the whole project | 5% | $5,000.00 | |
| Project Lead | 6% | $6,000.00 | |
| Deal with the City/Village - from start to finish | 5% | $5,000.00 | |
| Money Manager | 4% | $4,000.00 | |
| Property Management | 0% | $0.00 | |
| Construction Management | 8% | $8,000.00 | |
| Transaction Management | 4% | $4,000.00 | |
| | | |
| III. CLOSING | | |
| Marketing and Financing | 4% | $4,000.00 | |
| Show Properties with Prospective Buyers | 3% | $3,000.00 | |
| Purchase Contract and Negotiations | 4% | $4,000.00 | |
| TOTAL | 100% | $100,000.00 | |
| | | | |
The Mike Watson Institute of Real Estate Investing has come up with an Excel spreadsheet to make this process understandable.
The first division in profits is along the cash/work divide. As a general rule we allow 40% of the profits for the "cash" side of the equation. This includes the actual cash contributed, but also the "finding" of the cash, and qualifying for a loan or mortgage. When the purchase is negotiated, if the seller provides some financing, the one who negotiated that gets "credit" for some of the cash.
That leaves 60% for those who make the "deal" happen. The finder gets some, the "deal evaluators" gets some, the guy or gal that deals with the city (or county, etc.) has to be compensated, and those that design, build, and sell the project are in for a share.
A 60/40 split sounds easy until you throw in all these players and variables.
See my article on PowerTeams.
;)
;)
Bill,
You keep talking about Mike Watson - are you going to his 3 day event next month in Arizona?
John