How Do Real Estate Partnerships Work

Welcome back. At some point in your real
estate investment career, you’re going to have to get outside of yourself, you’re
going to have to move past your own resources. So, the burning question is, “How do real estate partnerships work?” Hey friends, Stephen Michael Miller here
and as you can see, I’ve got this beautiful laptop here and I’ve got
another question from you. And so, I want to go ahead and jump right in here, says,
“Great video. I have a question”, It says Kris but I know you meant me, you meant
Stephen. I it’s okay I get it. “I’ve got a question. If you split as a
partner 50/50, for who put the deals and knowledge, it’s infinite ROI but for who
put the money, it gets from a great 10 to 11% to 5% which
is not so good. How to convince them for 5%? So, basically you’re asking,
“Hey, I’m doing a 50/50 partnership. They’re putting all the money and maybe
credit into it. I’m doing all the work. How do I convince them that’s a good R-O-I
if we start it at a 10% and they’re not only getting 5, how do I
convince them that’s a good R-O-I? Well, maybe we should start first of all, with
what is a really good R-O-I? You said 10 to 11% is a great R-O-I. I’ll
agree a little bit. That’s a decent R-O-I, it’s not amazing. We’re experiencing
very typical 20 to 25% percent R-O-I’s. And so, when you look
at that, a 20 to 25% R-O-I split in half, it’ll be somewhere in
the 10 to 12.5% range, right? 10 to 12.5%
percent R-O-I is amazing for anybody, right? In the normal world and I want to talk
about normal returns and what most people are expecting. Because as you’re
talking about convincing somebody to do more real estate with you, you want to
understand what they’re experiencing in the normal world. So, just let me ask you
a question, and I’m… Don’t worry I won’t wait for a
response here. But the question is, is what do most people putting their money
in, right? What do most people, when they earn money, how are they investing that
money? Well, first of all, I’ll tell you, most people aren’t investing. Like that’s
just the flat-out truth. Most people are investing nothing. So,
they’re getting zero, a zero rate of return. Those that are investing, the very
typical investment strategies are put it in your 401k, maybe your IRA, maybe your
you’ve got it in a bank account or like a money market account, right? That’s
giving you a little bit more than nothing. Maybe you’re
getting stocks or playing the stock market a little bit. Maybe you’re even
investing in crypto currencies or some things like that,
right? So, most people are investing in what I would say, I would call them
extremely risky investments. Those first 3, I think that I that I name,
the 401k, the IRA and the bank. Although, the world would call them safe, I call
them extremely risky because I know that it will never be enough like it will
never make me enough money to create a retirement that I’m looking for. And
let’s just talk about those first 3, The IRA, the 401k and the bank. The
bank, you’re going to get maybe a fraction of a percent, right? Maybe if it’s a money
market account, maybe you could make up to 2 or 3%, maybe
up to 5 if it’s a really, really, really awesome. Probably not that much at all.
Right. So, you’re going to get only a couple percent. The IRA and 401k you’re probably averaged over it’s the life of the 401k or IRA.
You’ll probably average 4 maybe 5%. Maybe even less depending on
what the markets doing. I mean, if we go back to 2007 and 08 of course. You
know, we had a lot of people that lost a lot of money in their 401ks and IRAs. And
they are subject to that market fluctuation where people have no control.
So, that being said, if those are the typical investments that people are
putting their money in and they’re only getting, you know, 3, 4%
maybe less. Then getting a 5 or 6% return is better, it’s not
amazing. But if they’re able to get it 10 to 12% return, like that’s
pretty awesome. Like, that’s not that’s doubling
potentially maybe what they’re getting at the very highest. And
that’s a great opportunity. So, the convincing really comes in understanding,
what they’re doing and also having access to better properties or finding
better deals, right? At a 10%, maybe you’re not going to be able convince
somebody. But if you’re but offer them 10% as their portion, you can you
can convince them all day long. I do want to touch on one more thing here. And this
is the principle of FIFO or first-in, first-out.
And this is just really important to understand. As a matter of fact, I was
talking with my daughter just yesterday. My daughter asked my wife if she could
do a lemonade stand and my wife said, “Sure.” And so, my daughter’s,
actually, two, my older daughters with one of their friends, went to the store and
bought a whole bunch of stuff for this lemonade stand. Actually it was
lemonade, popsicles and snow cones, right? So, they went to the store to buy all
this stuff for this lemonade stand. Brought it back and they’re there doing
their thing. I go up to visit them at their lemonade stand and I said well, you
know, “How you doing?” You know, “Where’d you get all this stuff?”
they go, “We went to the store.” I said, “Okay, great. What did you spend on this?” And she
said well, “My one friend, she spent $50 and I spent 20.” Right? This is what she’s
telling me. I said, “So, you’re $70 into this. You realize you’ll have to make $70
right now, the lemonade stand, to even break even. She’s like, “Yeah, I know.”
You know, I said, “Okay. Alright.” And at the end of the day she comes to me and
she said, “Dad, we made $85!” And I’m thinking to myself, “That’s not bad, that’s a
pretty decent day at the at the lemonade stand. And she said, “Yeah. We’re going to
split it 3 ways.” And I said, “hold on, just hold on a second. You made the
business, right? This lemonade stand, made $85 but you put 20 in and your friend
put 50 in do you think it’s really fair to split $85 three ways? When she put all
that money in she won’t even get back what she put in. And she said, “Oh”, you know,
this was a whole new thought for her. She didn’t really understand it. So, I
said, “Yeah, you’ve got to pay back the investor first.” So, a lot of investors may
not be thinking about this or maybe you’re not structuring the conversation
appropriately for that help them understand. But whenever someone puts
their money into it, they’re going to get their money out of it first. This is how
we structure all partnerships, right? The the person putting their money into it,
it’s going to get their capital investment back first and then all
profits are split 50-50. So, that’s really important because from there at least
they know that their capital is going to be secured for them, right? “Secured.”
There’s all obviously risk and investment and people can lose money
investment. But assuming that everything goes well, they’re going to get their
initial investment back and then all profits would be split 50/50. Another
thing that I will say here is don’t diminish the value that you’re bringing
to the table. If you’re managing it, maintaining it, doing all the work for it,
there is a huge value in that. And if you’re offering on top of that a 10%
return or even a 7, 8, 9% return, you’re often them huge
value allowing them to continue to do what they’re doing which is earning more
and more money. And getting now their money to
work for them which it’s typically not right now for most people. So, at the end
of the day, you don’t need to necessarily convince anybody. You just need to have a couple talking points and some understanding on how that partnership
works and once you’ve got that and you can communicate that appropriately, the
right people are going to want to partner up with you. Alright friends, we give
you a little bit about partnering. And if you want to learn how to do more in
partnering or how to just learn more about real estate in general, please go
ahead into the description below and click on the link, click on our website.
We have so many different resources. As a matter of fact, you can sit down and
speak with one of our team to go over a very specific plan of how you can see
greater results in your real estate investing.

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