Investor Partners can be for: money, credit and/or experience.
There are several questions you need to ask a potential investor partner when you are interviewing them to see how you can create a mutually beneficial relationship.
One of the first things that you want to find out is how much money they have to invest with you and if that money is liquid or if it is tied up in other projects. Money that is “liquid” is money that is available to be invested immediately while money that is tied up in other assets, i.e. stocks, bonds, art work or real estate is not “liquid”. These types of investments have to be sold or refinanced so that the money can be used for other projects. Many times investors make the mistake of assuming that a potential partner’s assets are liquid assets. Always ask that important question: “Is the money liquid”?
You also need to find out whether or not the investor would be willing to sign or cosign on a loan that would be used to purchase the investment property. The advantage here is that if the buyer’s credit is not in very good standing, then the investor can bring their credit to the project. In other words, the investor can qualify with the bank to get the loan on the property.
If the lender is going to lend you the money are they asking you to make monthly payments? Are they going to lend you the money for a piece of the deal? This could be a percentage of the profit, part of the money coming from cash flow, appreciation, tax benefits or principal reduction.
Another question to ask is if the investor has any experience? For example if the buyer wants to purchase an investment property and fix it up themselves and either keep the project and rent it out or buy it, fix it, and just sell it to make some cash, many times the buyer tries to do the work themselves to cut down on the cost of rehabbing and therefore increase their profit. However, if the bank is the entity that is lending the money, they may want you, the buyer, to have someone who has experience rehabbing properties involved in the project or the likelihood that they will lend you the money will diminish. This is where an investor who has rehabbing skills can bring their skill to the table as their investment in the project.
The investor that brings their experience or credit as the investment can be compensated the same way as the investor that brings the money for the project.
Richard Maryanski and Erik Maryanski
Elite Creative Finance Instructors and Mentors.