How to invest in property management?We will tell you how to find the best partner to invest in property management.Not a week goes by without being asked how to distribute the potential profits of a real estate project into associates. So here is something to feed your thinking on this subject. Note that there is no standard scenario. Everything is based on negotiation and the relationship between the parties.
Who got hold of the windfall?
Contrary to what most people think, the most difficult thing in real estate is not to find financing, but to find a bargain. Believe me, it is much easier to find someone ready to invest with you than to find a motivated seller who will agree to sell his property at a discount or a property with high untapped potential.
If you are the one on the team that brings the other party the bargain in question, you have some bargaining power. You can decide to do the project with whomever you want, unless of course having planned beforehand that you will invest with such and such a person in the event that you get your hands on a good deal.
Who will inject the cash?
Another question to ask in order to determine the distribution of the shares is to know how much each one will bring in liquidates in the project and if the sharing of the profits will be made in proportion to this contribution.
A classic scenario is that of two individuals wishing to invest together. Often, one of them does not want, or cannot invest cash, but still wants to receive 50% of the shares in exchange for the bargain found. I am often asked if this kind of arrangement makes sense. In most cases I answer: “It depends! ”
About what ? Following items.
Who will take care of the project?
In flip mode, who will do the work and / or manage the work? One of the partners or a third party? The time invested is to be taken into account because this portion is often overwhelming. While this person will see to the smooth running of the work, he will not do anything else and must be paid accordingly. Either by immediate income or by an additional percentage of profit sharing.
How To Invest In Property Management?
When you have long-term buildings, you have to ask yourself these questions: who will be responsible for the day-to-day management of the building and the administration? Will you hire someone to do it or will you divide it up between you? In this case, good coordination will be required and a distribution of tasks will have to be clearly defined between the partners.
Who will vouch for the loan?
Finding a bargain and injecting cash are two essential aspects to consider in your project. But who will be the one who can finance the building and who will vouch for the creditor? Who will be able to go to the bank for financing, if applicable?
If none qualifies with a bank, you should consider using a private lender to finance your project.
But beware ! In such a case, make sure you have a quick repayment plan if the interest on the private loan is high. Otherwise, you could run out of business if the project deadlines get longer.
Also a question of relationship!
It is all well and good to negotiate quotations for the development of a project, but we must not forget the human aspect. It is often said that there is no room for emotions in business, but do not lose sight of the relationship that you have with the people who participate with you in the project. You may need to consider other “human” issues.
Protect each part
If you invest with one or more partners, I invite you to have a good agreement to govern your relations whether it is a shareholders agreement, a company agreement or an in division agreement, depending on whether you buy through a joint-stock company, a general partnership or between co-owners.
This agreement will, among other things, provide for the mechanisms in the event of the death of a partner, a conflict or even the withdrawal of one of the partners, including you. What percentage of interest will be paid to those who inject the cash? Sometimes it includes a division of tasks and responsibilities, but we must beware of designing an overly rigid framework. You have to keep a little flexibility since everyone’s role often changes over time.
Above all, do not try to draft this agreement yourself in order to save a few hundred dollars! Call in professionals. Also, take the time to understand it and sign it once it is written. I have seen too many people have unsigned shareholder agreements that fought afterwards.
It’s hard to get along when the bickering breaks out. Sign it and enforce it when the time comes. If the partners have understood their rights and obligations, discussions will be easier in the future.
Get involved they said!
What could be worse than partners who express the desire to invest with you and who, once the windfall is found, withdraw under the pretext of having associated themselves with another project.
Once you have found the rare pearl and the acquisition process has started, you will agree that it is not the best to go in search of funds. To avoid this unfortunate situation, have a subscription agreement (in the case of an investment by a joint stock company) or a letter of agreement (in other cases) which will provide you with some protection in this regard. . Again, consult a lawyer who will be able to properly draft this agreement.
You read that right. Before you embark on a real estate adventure with the first comer, would it not be wise to ensure a minimum of compatibility? There are a multitude of products and services on the market for this purpose. Many people have used for free is the evaluation. See the site for more details.
To conclude, I invite you to always keep in mind that your association should remain win-win. Nothing worse when one of the partners feels injured. You also need to know how to put water in your wine when investing in several.