Partner Vs. Rate of Return: Crafting Win/Wins With Your Private Lenders

Sleeping. You’re not dead, but you’re resting, not awake. That’s a win/win.

Take the clown fish living in a sea anemone. The clownfish gets a “roof” over his head while being protected by the stinging anemone, and the anemone gets small predators chased away by the clownfish (and gets fertilized too). That’s actually a win/win/win. Triple whammy.

Point is, win/win situations are awesome, and they’re a must when it comes to structuring your deals with private money partners.

Let’s run it back for a hot second

In some recent posts, you learned to play matchmaker, to find harmony between your private lenders and their properties. And without a doubt, you’ve nailed this essential step in the Private Money Blueprint process. Then we talked about how to present your deals to private lenders – how to effectively communicate with them, and what necessary elements to always include in your presentations.

Not let’s move on and get into structuring your deals. How do you do it, and should you consider partnering with your lender? Both great questions…and here’s what I have to say about that (said with Forest Gump-like accent).

Structuring your deal

Once you’ve got a private lender secured (congrats), you’ll need to structure your deal.

I’m not just talking about wham, bam, thank you…uh, lender. I’m talking about structuring your deals so they make sense for both you and your lender. The deal’s got to be a win/win. Period.

It goes without saying, but I’ll say it anyway…

If either you or your lender – or both – feel that the deal isn’t completely fair, your relationship – and probably the deal – will suffer, immediately. You want everyone walking away from the deal feeling warm and fuzzy and confident that the deal was fair and unbiased.

And the best way to make sure the deal is a win/win for your private money prospect and yourself is to first have your lender restate and confirm their level of interest.

A little reassurance goes a long way

After your lender (fingers crossed) reiterates their interest, reassure them that you have everyone’s best interest at heart and that you want all parties involved walking away feeling great about the deal. Make sure they are comfortable and content with the deal terms, and suggest moving forward with the deal (and their investment) in that very moment.

Your potential lender will appreciate that you’re looking out for their interests – as well as your own – and will be more likely to move quickly to close.

Believe it or not, not everyone wants a piece of the pie

So what if your lender wants more money for putting up money? You’ll deal with some lenders who feel entitled to more simply because they’re providing the financial backing. If you’re dealing with an investor who wants a part of the profits, the ball is your court.

You decide what terms you’re comfortable with. Does your lender get a bigger piece of the pie for bringing money to the table?

Here’s the deal – and it’s just the business of getting private money. If you’ve got another lender on deck (and you already know to have on-deck lenders per my last blog post) who can fund the transaction and does NOT want part of the profits… you walk. For realsies.

Why do business with someone who will take more money when you can get your deal funded by someone who won’t? No-brainer.

If you can secure private funds and keep the profits, move on to the next lender. Make the deal a win/win for you and the lender. That’s the bottom line.

Remember, there’s no one formula, no exact science to structuring private money deals, but if both parties are happy, consider the deal a huge success and do your happy dance AFTER the deal is done.

To partner or not to partner

I created the Private Money Blueprint to help you get private money for your deals and to teach you how to pay investors a rate of return for their investment. But, there is nothing wrong with partnering…sometimes.

When I first started working with private lenders, I was more than happy with collecting 25% of the net profits from my deals. But with a little experience and a lot of knowledge gained, I soon learned that I was giving away more than I needed to.

With private money, I could acquire financing and pay a flat rate of return. Cheaper money meant more profit in my pocket for the same amount of work. Hello!

If I’m presenting my program and meeting with potential investors whose contributions to the deal are strictly financial, then there is no need to partner. Ask yourself these questions…

• Does my lender bring experience and expertise to the table that I can learn from?
• Can my investor manage the property, and do they have an interest in doing so?
• Is my investor new to the real estate investment biz, and do they want to learn from me?

If your answer is no to any of these questions – then partnering probably isn’t your best bet.

Partnering can be a double-edged sword for sure. For new investors, it can be awesome. Don’t get me wrong. It’s a great way to get through your first few deals. Trade profit for knowledge when you need it…

But once that private money ball is rolling, you’ll find that simply borrowing the money with partnering is in your best interest.

Remember, be sure to structure deals that are fair to both sides. Nobody should get a leg up, and everybody should win. Investors loaning $5,000 or less are typically looking for regular returns not equity stake, so keep this in mind as you work your deals.

Anything to say?

Do you have any thoughts to add about partnering? Talk to me in the comments section below.