Private Money Partnering

Kinds Of Returns And Rewards

Chapter N.

Bigger Risks Deserve Bigger Rewards
Partner Goals Reflected In Negotiated Agreements
Make Adjustments When Necessary
Don't Be Greedy

Forms:
Who Gets What - Dividing Up The Benefits

There was not much risk at that point, with the house already fixed up and a buyer in place. I told them I would pay them $11,300 upon the resale, or their original money plus 13%, no matter when it closed within the year. The deal was actually completed within six months, so their rate of return was not 13%, but 26%. And I got more out of the deal as well. Partners number one got their money back quickly to do what they needed, partners number two got a fairly secure investment at a good rate, and I get a total of $8,600 for the deal in all, through two different sets of partners. I negotiated two different deals, based on what the risk level was at that point in time.

Partner Goals Reflected In Negotiated Agreements

Design the types of returns you want in your initial negotiation with
your partner. What is the goal of each of the parties? Start first by
looking at your own goals. What was the goal you each set out to
get, other than money? Is it money at a certain interest rate, or held out for a certain length of time? Will the cost of funds you need on this particular project be acceptable to this particular partner? Can Debbie or Dan achieve their goal without going to a high rate lender, paying points and closing costs? Or will that route be the best way to approach this particular project?.

The range between what you want and what you need is the range you'll be negotiating.

Make Adjustments When Necessary

Consider making adjustments to your original profit agreement. Sometimes it's in the interest of being fair, and sometimes it would be to reward skill. Listen to Steve the Dealmaker approach Pat the Money Man about their final settlement.

STEVE: Hey Pat, I've got some good news and some bad news about our project that we're involved in. Which would you like first? The good news or the bad news?

PAT: Give me the good news, please.

STEVE: Well the good news is the house appraised at $10,000 more than originally projected.

PAT: Great, super.

STEVE: Isn't that great?

PAT: That's marvelous! What's the bad news?

STEVE: Well, the bad news is that I'd like a little bit more than 50% of that extra money that's going to come in. Rather than splitting the deal 50/50, you'll still get your original 50/50 share of our projected profit, but I'd like a little bit more of that extra $10,000 because I think that I'm pretty much responsible for creating that extra $10,000 in value.

PAT: How do you feel you're responsible, Steve?

STEVE: Well, I think, number one, I bought the property right. I really negotiated a good deal, and I think the way I fixed the property up in decorating it and repairs, I think I was really responsible for creating the extra value that came in on the appraisal. Since it did come in $10,000 higher than we had projected, I think it's only fair that since I created that extra value, that I would get a share of it.

Kinds of Returns and Rewards - Chapter N (continued)