“So let me get this straight. You’re putting in $5,000 and I am putting in $65,000 and then we’re splitting the deal 50% / 50%? I am just getting stuck on this concept.” says Jane*.
Jane is a busy business owner with two kids. She has some money, would like to get into real estate, but hasn’t had time. She contacted us to see if we could help her with a joint venture partnership. We presented her with one of our upcoming deals. This particular deal is one of the best deals we’ve ever had – we’re getting it significantly under market value, it’s in our target market area where we have the highest demand from rent to own tenants, and it’s a gorgeous property. The curb appeal and condition of the home is excellent.
When it comes to the deals we do, this is pretty close to as good as it gets.
When we first began speaking with her she was thrilled that we were projecting a 16% per year return on her investment, but now she’s long forgotten about that and is hung up on the fact that she puts in most of the cash and we still split the deal 50% / 50%. Her return is still going to be a bit better than 16% per year, but she’s stalled out now that she’s seen what the deal looks like on paper.
She’s not alone.
This is the single biggest objection you’ll hear when you start presenting deals to potential joint venture partners.
It’s actually a funny objection when you think about the fact that many of these same people also invest in mutual funds where they pay their advisor whether the advisor makes them money or not, and the mutual fund manager is also making money regardless of whether they do. In this scenario the ONLY way we make money is if our partner makes money. In other words, if the deals aren’t making money, we’re not getting paid at all.
When you’re faced with a similar situation you may want to shake the person to wake them up. I know that’s how we feel sometimes, but that isn’t the best way to handle the situation. Here’s what I recommend:
#1 – Know Your Value as a Joint Venture Partner
We have invested hundreds of hours into becoming area experts. We have invested thousands of dollars into marketing so people call us when they have a home they are thinking of selling. And, in this specific case, this deal FINALLY came to fruition after six months of communications back and forth with the sellers AND only because we were the only party able to make the deal happen in 24 hours when they found a house they wanted to buy in their new city. If this was the only deal we did this year and we split the deal 50% / 50% with her, we’d probably be making less than $5/hour for our efforts.
In other words, it is our partner that is getting the tremendous deal on this property. We bring enormous value to the table and her contribution to match all the effort and experience we’re putting in, is to only the majority of the funds for the deal.
If you’ve gone to all the effort to educate yourself on real estate investments, find a great deal, and get it locked up I should not have to tell you how much you’re bringing to the table when you offer someone a great deal. Not to mention, your work is not done. You’re going to place tenants, oversee the property and ensure things run smoothly.
Be confident in the value you’re bringing to the table. If you aren’t, make a list of EVERYTHING you have to offer in a partnership. The list is probably bigger than you think.
Real estate investing takes time, effort and expertise. It’s not easy. That is worth more than money if you ask me.
#2 – Look for Fit -not everyone with money is a good prospective joint venture partner
Think about who is your ideal joint venture partner. Our ideal joint venture partners want to be hands off because they are very busy, have at least $60,000 to invest, can qualify for financing, and are likely to do more than one deal with us. We are looking to build long term relationships with our partners. Most of our partners are repeat partners and that is exactly how we like it!
What are you looking for? Make sure you know and then you spend time qualifying them.
In other words, you’re not asking anybody for money, you’re offering a specific person a great opportunity to invest in real estate and make a great return on their money, without having to worry, work or wonder what to do next.
Some people with money want to do the work. Some people with money will be a pain in the butt. Don’t be afraid to be a reluctant partner … and when you are, you just might find people are more eager to work with you and are less concerned with the 50% / 50% split issue.
#3 – Desperation Stinks
One of the worst things you can ever do to yourself is come across as needy. Think about it from the perspective of dating. If someone asks you out on a date and you hesitate, and then suddenly they are offering you all kinds of incentives and concessions to get you out with them, you’ll probably never go out with them.
I just wrote about this for Diva Money Club in a post about gaining celebrity like status. Human nature is such that we want to chase, not be chased. We want things we can’t have and we don’t place any value on things that are too easy to get.
If you’re speaking with a joint venture partner who has reservations about splitting the deal 50% / 50% with you, remember they are human. If you seem desperate or too anxious you will not help them overcome their objection.
#4 – Remember: Money is a Commodity
Remember“Money is a commodity that is available in a thousand places, and that it’s the same no matter where it comes from.” ~Oren Klaff
I’ve said it dozen of times but MONEY IS NOT YOUR BIGGEST OBSTACLE. Yes, you’d love it if each prospective Joint Venture Partner says ‘yes’ to your deal but at least half of them will say no. That is ok. If things aren’t going well with the person you’re speaking with, keep yourself from feeling anxious and coming across as desperate by reminding yourself that there is only one of you and there are plenty of people with money.
Know that someone else’s money is going to work just as well as the money of the person you were just speaking with.
#5 – Remind Them About Their Return, Reinforce Your Value and then Work on Finding Someone Else
With the important mindset elements in place you’re ready to sit down with your prospective partner and basically say to them:
“When we met you were really excited about the return of 16% per year. That is still the same. Are you no longer happy with that return? Keep in mind that I will be taking care of finding the deal, negotiating the deal, handling all the documents, hire and oversee the renovation and repairs, prepping the property for showings, advertising, taking tenant calls, showing the property to tenants, handling their calls, emails and text messages, collecting rent, finding repairmen as needed, communicating with the accountant to prepare the annual statements for the accountant as my side of the deal and all you need to do is sign a few papers, open a bank account, and deposit the money for the down payment. After that I will handle everything and just keep you updated.”
You could even present them with a written and lengthy list of things you’re responsible for if you’d like to really reinforce your value. [Not to scare you, but that list of things is at least a page long compared to probably five things they are responsible for.] It’s a powerful demonstration.
After that, if they are still hesitating, walk away. They may come to their senses, and because you weren’t needy, they will want to work with you. Or, they may choose not to invest with you. That’s ok too. Just move on and find someone who is a good fit for you, and who is happy with a 16% return on their money regardless of what you’re making or investing.