Discount Partnership Profits

JimPellerin — Sun, 12 Feb 2012 22:12:25 +0000

Make Money By Buying Out Your PartnerWhenever I acquire Real Estate I always look at bringing in partners or investors. They help provide more funding that I can leverage and increase my return on investments. One of the ways I can increase the return for my investors is by offering them my share of the partnership at a discount. They could buy me out.For example, let’s say I enter into a partnership with an investor to buy a property and Lease Option the property to a Tenant Buyer for 3 years. I usually get the partner to finance all of the purchase and then I do all the setup and manage the Tenant relationship during the lease period. Let’s say, in this example, we would each end up receiving $10,000 as part of the eventual profit split.
At some time during the term of the investment, I offer the partner to buy out the remaining part of my profit split. In this example, let’s say I have already received $2,400 ($200 per month for 12 months). I could offer to sell my remaining profit of $7,600 at a discount to my partner. Let’s assume I sell it to him or her for $5,000. This means they could earn $7,600 on an investment of only $5,000 over the remaining 2 years. That’s a profit of $1,600 on an investment of $5,000 or a 16% annual return on his investment. If 16% is not enough, maybe offer to sell it to him for $4,000 for a 20% annual return. The motivation for you to do this is to liquidate and to get some quick cash that you can use for other investments. This is very similar to selling notes at a discount. Of course, all this is dependant on the actual profit after expenses and that there is no additional major cost that impacts the profit.

A variation on this arrangement would be that you sell a portion of your profit and you continue to manage the property for them for a monthly fee of say $50 per month. This helps reduce their risk. Still another variation on this whole approach is that you buy your partner out instead of them buying you out.

Happy Investing,

Jim Pellerin

Investor, Advisor, Speaker, Coach, Writer

7 Steps to Real Estate Riches

The Realty Millionaire

Smaller Down Payments Mean Higher Returns

JimPellerin — Wed, 01 Feb 2012 23:54:42 +0000

Smaller Down Payments Mean Higher Returns

Get As Much Financing As You Can

When financing your Real Estate Investments, you will want to get as much financing as you can. I buy all my properties with 100% financing by using a combination of regular mortgages and secondary financing. Of course you always want to make sure that your investment has a positive cash flow which is more difficult with higher mortgage payments due to lower down payments. With today’s low rates, it is much easier to have a positive cash flow. The reason you want to have a lower down payment is because your Return On Investment (ROI) will be much higher.

For example, let’s assume you are buying an investment property for $100,000 with a $10,000 down payment. And let’s assume your positive monthly cash flow is $100. This is an annual ROI of 12% ($1,200 / $10,000).

Now assume you only put down $5,000. Assume, also, that the positive cash flow is still $100 per month (ignoring increased mortgage payments because they are easily offset by the mortgage principle pay down). If you are doing Lease Options, you can just make the monthly payment required by the Tenant Buyer higher. Your ROI now is 24% ($1,200 / $5,000).

If you look at appreciation, the results are even more spectacular. Assume the same property increases in value by 5% or $5,000. That is a 50% ROI when your down payment is $10,000 or 100% ROI when your down payment is only $5,000. Since I buy all my investments with 100% financing, my ROI is infinity or basically not measurable.