In Tony F’s interview he mentions how he used partners to come up with cash he needed to buy a park.
I can see where it could be relatively easy to get relatively small contributions from a few people.
In his example, each put up $4,000 for a 25% share.
It wasn’t clear if his share was a bit more as the one who found the deal and presumably did the work of closing on it.
I would think that the person putting the deal together would get a share of the proceeds higher than his cash contribution. Is there anything like a reasonable, normal way of determining the shares?
Maybe this will come up in tonight’s follow on interview.
Thanks for any thoughts…
There are a few things you can do in the scenario you are giving.
On acquisition you can charge 2%-3% of acquisition price as an acquisition fee.
On management, if you are the one managing the manager, you can build in a management fee. This works will on a JV structure when there is an imbalance of responsibilities. 5% of gross is a good number here.
On disposition, if you are handling the sale, you can build in a disposition fee. 1-3% of sale price is common here.
If you are the one who is guaranteeing the note, you can usually negotiate a higher percentage of the return. This works well if you, as the acquisitions guy, find a deal that is a little too big for you. You can bring in another partner who has the financial ability to pass the bank’s scrutiny. In exchange, you would give up a portion of your return.
Working with partners is a negotiation process. There are many different ways to assemble the right partnerships for each specific deal.
Now for the disclaimer. Consult your attorney to be sure you aren’t selling a security in your desired structure. For those arrangements things will work very differently. I didn’t listen to Tony’s interview but I assume that he was talking about working with active partners due to the low amount of money involved.
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Thanks so much. That helps a lot.
It all comes down to negotiating. You need to convince your potential investors that you are worth what you are asking. Get too greedy and you will have difficulty finding partners when first starting out. Once you have a proven track record you can negotiate higher compensation.
Aside from finding the deal what do you bring to the table. Money, experience, preferably both.
I second Greg on that. If you are getting into your first park, I would recommend that you be willing to give up some of your returns so you can learn the business from people you are excited to learn from. Being able to find the deal is a very small part of the equation. Yes, it takes a ton of time, it’s frustrating, and it can be expensive. However, managing it properly will ultimately be the thing that makes it a great deal. Once you get a track record on that first deal, things become a whole lot easier.
If you have get a first deal, I would recommend bringing in an experienced investor who can lend money and knowledge. They’ll want a bigger cut of the returns compared to a passive investor, but if you pick the right experienced investor it will likely be money well spent. I took down my first park without a more experienced partner, and in hindsight I consider it a mistake. Giving up some equity to a partner who could have held my hand in running the property more efficiently from day one would have made the property management less time consuming, more fun, and boosted the NOI.
Sounds sensible to me.
Where do I find and qualify experienced investor(s) to work with?
For a small first deal, I might be able to get some cash from family and friends.
I would only do that to the extent that I would be willing and able to repay eventually if it all turned to sand.;
But with that approach I would miss out on the benefits of the experience of an experienced investor.
This forum is as good a place as any to find an experienced partner. I always hated the idea of investing money from friends or family. It’s easier to get money that way, but losing your friends and alienating your family is the risk. That never was worth it to me.
Just get out there and start networking. This process ultimately starts with you putting yourself out there and builds from that point. If you are persistent and maintain a faith in yourself, you’ll be the one left when everyone else has fallen to the wayside.
If you found a deal and posted details and financials and asked for an evaluation, and also mentioned you’re looking for a partner, you would get one of two things:
-Feedback that it’s not actually a deal and you should stay away
-Interest from plenty of investors who would be interested in partnering with you on it.
You could also meet investors at the Bootcamp put on by Frank, or look for other industry events in the area.
I will go one step further. Display your aptitude for evaluating a deal. Our company is absolutely starving for birddogs and we offer a great deal to those who have the ability to find a deal. We have no problem finding our own deals, but we would love to expand our network and do more.
Our biggest problem is that a lot of our birddogs get excited about things that aren’t that exciting… we offer a 2% of purchase price fee applied to equity for a deal we close. ($20,000 of equity on a $1,000,000 deal). You can also take it in cash (we may pay you 4-5% in this case), but why the heck would you? Best in industry as far as I’m concerned. Anyways, we haven’t done one yet with one of our birddogs, but we still hold true to this. If you were to find a deal you think is exciting, we would be more than happy to consider it and make you an active partner with a real role in the management. We do have some safeguards, but we do understand that there is a real need for others to have access to someone who can close, get financing, manage properly to maximize profits, and teach. We are always willing to provide that in a mutually beneficial exchange for a workable deal.
If we have this pitch, I’m willing to bet most everyone has this pitch. We spend thousands on marketing and we still go through spells where we feel like we aren’t getting things done. One of our principals has done $2.5billion (with a B) of commercial deals… We have the pieces in place to do most anything in this space, but deals are hard to come by at the moment and he/she who controls the deal… well, you know. Everyone is starving for yield so don’t be afraid to go look for a deal.
I signed up to see the Tony F interview, but ended up not being able to make it. Does anyone know if it will be replayed?
I’ve been speaking with investors about partnering in mobile home parks and I’ve got some good interest. One thing I want to mention, since I’m not sure what Tony F had to say on the subject- make sure you know your state and federal SEC laws with respect to raising private funds.
Recently we have a new ruling their calling A plus - in theory it’s allows some forms of crowdfunding, advertising, and testing of the waters. I’m going to sit down with a local SEC attorney to get some clarity on as soon as I can. 506d also had a big change with one option that now allows some advertising.