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.