Opinions Needed Please
My son and I have been talking about doing some rehab deals together. I have the credit, we both have some cash.
Here's what he is proposing:
I get the construction/rehab loan ($80,000) in my name only, we split the cost i.e. montly interest payments, insurance, utilities, while the property is being rehabbed, we will both oversee the work being done (and may even do some of it ourselves) and when the property is sold, we split the profits 50/50.
Now...I have a problem with that, seeing as I am the one assuming the greatest risk by taking out the loan. Also, I am still having to fork over 50% of expenses. In my mind, his proposal is lopsided. I suggested that he would be entitled to receive his full investment back plus a percentage of profits based on what his investment represented in "overall" costs.
My proposal:
property = $60,000;
repairs = 20,000;
expenses = $5,000.
The property sells for $120,000.
If he invests $2500 (1/2 of the $5000), that represents 3% of the total cost of $85,000. With a profit of $35,000 ($120,000 - $85,000), he would be entitled to 3% of the profit or $1050. Ok...I know this is a lot of information. But as I see it, after the sale of the property, he would get back his original $2500 + $1050 in profit for a total of $3550. He couldn't earn that much money in the bank. He says that's riduculous, that I shouldn't count the loan because it's not like I'm using my personal money. Yeah, right, but let me not pay the loan, and guess who's head will roll.
Because he's my son, and only because he is, I might be willing to split the profits say 80/20.
I would be willing to pay my son on an hourly basis for any work he may do to the property, but I will have a contractor in place to do the majority of the work.
Somewhere...somehow, either his math teacher or I failed this kid. Or am I the one with the math problem?
What he is purposing if I'm correct is an elephant-mouse partnership. Which would be...
50% profit to you for the money part.
50% profit to him for doing all the work
This is a fine set up if he is doing ALL the work on the rehab and resell side while you sit back and wait for the return on your money. If you want to take on the headaches of dealing with the contractor and ever detail of the property then I would negotiate something else.
My suggestion is that you do it on your own and let your boy fend for himself. Sounds to me like you're on the way to a major conflict. Not sure if that's worth a little profit here and there.
Agreed. It's not a good deal for you.
A 50/50 split requires a 50/50 deal. If you're supplying all the money, sharing on all the expenses and fixing, what does he think he is bringing into the deal? Finding it? If that's all, that's little more than a birddog, and a $1K profit for that is pretty good.
Sounds like somebody is trying to take advantage of a parent (or has some really poor business sense).
Good luck,
Roger
depending on how well your son is on leadership and such and overseeing the repairs to the property, the only way i do see it 50/50 is if he DOES do most of the leg work as to overseeing the repairs and such while you make sure he dont screw up. Being that its your loan and being that it is your son, you may help here and there so he doesnt screw your loan money on un-needed misc. expenses. If not the above then i suggest for you to correct his business sense, show him these posts.
and tell him, "i'm sorry son, its just going to be that way."
and this will be him--->
and your face will be and then go to
just having some fun.. hehehe sorry i'm probably younger than your son, so i'm still a kid.
cheers and good luck on you father/son bonding moments, wish my dad spent more time with me.
[addsig]
ask yourself this....
Do you need each other to do the deal?
Will it benefit you?
Will you profit from it?
Do you trust your partner/son?
If yes do it...
Dave is correct.
You are mixing two items. You are Father and Son hang on to that, money comes, money goes.
Your split is informal, and should remain that way. You are on title on this one. The next one put him on title.
Do not screw up the really important family relationship.
Want to have some fun? Form a Partnership LLP of course. Borrow in this entity name on all future deals. Assign duties in the partnership. If necessary write a job description for both of you. Pin it on the wall and throw darts. Darts is a good game.
Familish, Lucius
I think that before you think about money you need to think about relationships. Keep those family ties strong. Each partner needs to do something the other can't do on their own. Down load the realestate evaluators from the freebies/software page here and use it to calculate your costs and profits. I think a 80/20 split is not very fair unless he isn't doing much at all.
[addsig]
HI IVE BEEN IN SEVERAL BUSSINESS DEALS WITH FAMILY MEMBERS AND IT ALMOST ALLWAYS BECOMES A PROBLEM MAKE SURE BOTH HAVE JOB DUTIES OUTLINED ,AND NO ONE PARTY CAN SPEND THE OTHER PARTYS MONEY RIGHT HAND NEEDS TO KNOW WHAT LEFT HAND IS DOING ALSO IF THIS IS YOUR SON MAYBE HE NEEDS A LITTLE HELP GETTING STARTED A HAND UP NOT A HAND OUT JUST MY THOUGHTS
ROBERT
Great responses!
Let me clarify: I have a contractor - not my son. My son and I may work together doing some of the cleanup and the painting, but the rest will be done by the contractor. And yes, my son did find the property, although the source is someone I would have eventually run into. (that's another story). Any my son is not a "youngster" trying to get in the biz. He already owns property.
The family relationship is VERY important to me -- which probably explains why I haven't told this "adult" son of mine where to get off.
More and more, I'm inclining toward an 80/20. And I feel that is quite generous for a 3% investment. Oh, and I might add, I am not in need of his "investment," so the whole thing would be to allow him to put some extra cash in his pocket.
[ Edited by makingaliving on Date 11/02/2003 ]
I guess I am looking at this from a different perspective. You say you have the credit. You also say your son owns property. How is his credit? If it is bad and he has shown himself to be an irresponsible rapscallion, or even more importantly, if he is a responsible adult, are you looking at this as a partner or as a family member? I think offering your son 3% of the deal is pretty greedy. Of course I am sitting here boxing with my 6 year old with his new hulk hands. You said you don't need the investment, and that you would have run into this mutual acquaintance eventually. This brings up visions of Aesop and the tale of sour grapes. Now I could be all wrong and do not mean to demean or belittle, after all I've just briefly perused a 10 line post and deduced all this without the benefit of a masters of psychology. I just see the damage that can be done with this type of deal. I have seen a lot of successful business owners that have left their son's the business and a lot of times they don't perform nearly as well as the Dad expected. Of course they came from a different dynamic. Dad was raised hardscrabble and was a self made man... everybody said so. Son was raised w/ a silver spoon and any accomplishments he ever had were critiqued by his dad, and his friends all said they could have done it too if their dad was rich. Is it worth $16,000.00 to either enrich or belittle your own son? I hope, that in 20 years, I reread this post as my 26 year old son comes to me with a proposal that gives me all the grief and risk, and him the inordinate amount of the profit. I think I know where you are coming from, but I could just be a liberal nut
Good Luck and God bless you and yours,
Shawn J Dostie(OH)
i don't even think there's a question here. if you want to deal fairly with family then i say, don't let them know what you do AT ALL, because fair and blood don't mix. haha. he's not even just your second cousin from Cleveland, he's your son. man, give him this one deal and let him know how you feel. "Son, i don't like the deal because of .... but I'll do it to help you get on your feet!"
Next deal, partner so he has some of the risk on the actual loan (maybe a cosign or partnership). by then, with properties already and a couple loans to do good on, he should be ready to rock without you totally and yall can hug 'n kiss (or a manly shake of the hands) and all's well.
good luck
This deal stinks and will get more bitter as time goes on. Especially, after you finally calculate your financing costs, holding costs and your selling expenses. There's not enough profit here for this type of haggling. Do it on an
equal shares relationship or don't do it at all.
With this of mentality- you are both better off doing your own projects. This reminds me of the Mendoza family. What were their kids names?, Eric and Lyle.
Cut all the BS with trying to walk the line between a business deal with your son and a father son relationship.
Giving him a $1000 return on his investment is bending him over and doing him hard. Try finding a person who is not your son and offer him that deal and watch them laugh in your face.
Give him a check for $5000 for bringing you the deal and do it yourself. That is a nice bird dog fee for someone you love as much as your son. Or tell him you will let him do it on his own.
He makes money, you make money and that is a fair deal for both of you. Keeps the family toghether and no hard feelings.
You will never find another person who is going to help you make $30,000, help you do the work, help you oversee the workers, all for $1000 and at the same time put $2500 of their money into your project! If you can find people like that send them to me PLEASE!
[addsig]
My rule of thumb..Never mix business with family or pleasure. You can start out together on something and end up apart over nothing. Be careful.
Benny
[addsig]
That's a tuff one. If he found you the deal, you should give him a finders fee. That's fair, but I must warn you, if things are starting out like this, beware. My brother and I just came to an agreement (this is a brother sister partnership) I told him about my idea to work together since he has the skills and I can do the funding. I can also pitch in as well . He said 50/50. Again, he has no $$ to put into the deal. Also, I did not want him to do in his spare time for free, since he really does not have spare time. And as you know, time is money, need to get things turned around as quickly as possible. This is what I proposed and asked him to pick one that would fit.
1. If 50/50, he would have to put half of the money down. I would pay monthly expenses and pay for materials.
2. Or, 50/50, he would pay for materials and do all of the work for free.
3. 90/10 I pay for everything, cost of home, holding costs, materials, everything! Including paying him a fee for the work that he does as we go.
He went with no. 3. I will be paying him for his work and give him 10% of what we make at the end in profit. I can actually gift that to him so he will not have to pay any taxes (at least anything up to $11,000 is allowed). If he earns mor that that in a year, that would be great!
Once we get through out first job together, I will see how it goes. I want to help him and would love to have him come to me some day and say, hey, let's go 50/50. I will probably increase the bonus as we go along, I think we will make a great team together.
But, with family it can be tricky.
Good luck to you and your son. There's a saying, I'm sure I'm not quoting it correct but. "If you give someone a fish, they will eat for a day, if you teach them how to fish, they will eat for life"
God bless! and Good luck
Your son brings the deal...you pay him money.
It's really not about what he "brings" to the table, it's about helping him on his feet. If you don't need the money and are saying that you are concerned about giving him 50/50 then you may need to rethink some things.
Let the guy get on his feet if that's what he needs. For god sake, my father has spent way too much on me because he believed in what I did...even though I failed sometimes, lucky for me I had someone there to pick me up and bail me out (not literally
If you don't need the money, then split it 50/50 just to help him out and then from that point forward he used the money himself or every other deal is 80/20 based upon the results of the first.
Of course, everyone else here is right also in not mixing families unless you have everything laid out in front of you. Think of the most incompetent person you would explain a deal to and then multiply by 10....that is the level of detail that has to be understood between you both. Has to be written down and has to be understoood. None of the "yeah..gotcha" crud, has to be firm understanding. Teach him that a business is a business, even when family is involved. The break is that you are helping him, everything else is business.
Good luck and let us know how it goes.
Christian "The Solutions Kid" Beebe
[addsig]
DO NOT move foreward on a deal together until you have come terms that you both agree to and both are happy with. Get them drawn up, and take them to an attorney. Better yet, take them to your own attorneys, respectivly.
If you can't come to an agreement that you're both happy with and that is a win-win, then you should never do business together.
Define your roles and expectations. What are you each looking to contribute and to gain. You should have unique (not similar) strengths, weaknesses, and resources.
Some questions...
Who is doing the legwork?
Who found the deal? (that's often the most difficult part)
Who's taking the risk?
Who's contributing the funds?
What portion of the debt service is each covering?
Do you need each other?
Does the investor want to be passive or active?
Do you trust each other?
Are you willing/capable of sharing the losses?
You might split the profits in a certain percentage.
You might treat one as a lender (HML?) and give a set, predetermined return.
You might pay the "legwork" person an hourly wage or a pre-established figure.
Once you both agree to a contract, it IS fair.
GET IT IN WRITING AND BE PROFESSIONAL!!!
Don't assume that because you're family it will work. Quite the opposite. Because you are family it will more likley crash and burn. (and burn hard and long).
Good luck. Don't rush into it and don't be afraid to back out of it. Treat each other as business partners, not family members. Talk through expectations, concerns, and possible scenarios (best and worst cases).
Good luck!
For the record -- I'm the .Mother of this twenty-something young man. (although I have been dad a few times in his life...lol)
I like the options laid out by the sister/brother team. Those sound realistic and doable. I think I may approach my son with options like those.
For the life of me, I still don't see why I should give him 50% of the profits, when the most he did was find the property, and he will only be helping to sweep and paint --- maybe. I am the one assuming the financial risk and I am the one who HAS to make sure the work gets done in a timely and correct manner. I could definitely give him a finder's fee.
good for you! More often than not deals made with Family it always seems that we get the shorter end of the straw.
Does this stop us? No. Do we get more cautious and creative? Yes.
The whole issue is profit = risk. We determine our risks (loss and gain) for each party. Determine if we (my partner & I) can afford to lose. Determine if we trust this family member. Figure a fair and equitable arrangement and speak to the other party.
If our son, cousin, sister etc.... can not accept the terms there are no hard feelings on our side; we just say thanks for the offer/opportunity and move on.
I believe in family, supporting children especially no matter their age but I have learned that business is business. And if my "deal" is acceptable and I am not willing to negotiate any changes I am perfectly fine with saying "thanks but no thanks not this time" maybe the next one that comes around.
I will not habor any ill will if they don't accept my offer, I just don't. I also tell them that I expect if their terms are as good as they believe they are that they will not have any trouble finding another to help them with it, but really truely appreciate them thinking of me first.
Which I do, even though I know it is becuase they think I have pockets made of gold......
This thread was quite an eye-opener. I can honestly say that I was truly surprised at a good amount of the responses to this question. Just about everyone is concerned with the MONEY. This isn't just about money people. It's about how you live your life and what we pass on to the next generation.
Are we trying to show our kids that money should be the ultimate decision tool when it comes to our negotiations, even with family?
What else do we apply this to, do we set up a reimbursement schedule with our children for all of the diapers, food, daycare, clothes, pictures, proms, etc. that we have spent on them for all of these years? This kid didn't ask mom for money to blow on a hot stock tip, or for a loan to do this deal himself, he brought an investment idea that they can share together, but he knows that he can't fund.
Obviously, the mother in this case has looked over the deal and is willing to take on the risks associated with the deal by herself. But she has a chance to teach her son a skill set and a lesson about money as well. Yes, she will be putting in the money, but a contractor will be doing the work, and the son will be doing something. So what I'm getting from this is a problem with sharing some of the profit with your son.
There is a lot of potential benefit by doing this deal and others with the son. As the deals accumulate, so will the son's financial reserves. In time, he will be in a place to match you 50/50 on the deals and that is when things will really start moving. Think about 10, 15 years from now. Who would be doing most of the work on properties then????? Probably the boy. What about after this transaction goes through successfully? Don't you think he will be motivated to get out there and find another one right away??? He'll probably be more motivated then you are.
If it has to come down to the money, then make an arrangement up front that you will do the deal, but you will require him to put up some money, and any profits would need to be held in an account controlled by you to be used to acquire the next property. That way, you can be sure that he won't blow the cash and that he will very quickly be able to come up with his share of the 50/50.
This is a perfect opportunity to help your child in his escape from the rat race and stop working for other people.
Real Wealth has nothing to do with money.
[ Edited by mcl8190 on Date 11/03/2003 ]
Just my .02.
As Shakespeare wrote, I apply to my freinds and family.
Neither a borrower nor a lender be...
I learned the hard way.
I have been burned once. Near the fire I will not go again...
Ok...mc18 and anyone else who thinks I should do as my son says and go 50/50.
A few things we are not talking about here:
1) my pockets are not full of cash. As a matter of fact, I am scrambling trying to recoup and regroup and stay afloat.
2)this "boy" is a grown man
3)There's no question that I love my children (yes, there's another one), and have and will continue to make sacrifices for their well-being.
However, WHY does it seem selfish, greedy on my part to NOT want to go 50/50 in this deal, but not selfish, greedy on his part? I would never propose that someone just hand me 50% of anything unless I made an equal contribution. This is business. Being his mom does not entitle him to ask me for more than what's fair to both of us. I already said I'd be willing to give him 20%, which is much more than the 3% he will be putting in. That's 20% of profits + his original investment. That will put him further ahead of the game than he is now, and if he's smart he'll hold on to it for the next investment opportunity. He can sacrifice and build up gradually like I had to do when I left my parent's home.
I think he'll learn more from this approach than if I rewarded him with a disproportionate share.
Another thing to consider...blood is thicker than money. Why not cosign with him for the loan, that way you are both on it. Besides, if you are splitting profits, and everything is well, and also splitting expenses down the middle, then that signature, in my eyes, is irrelivant
[addsig]
I'm with you Makinaliving!
To my way of thinking I dont think that we are concerned about the money, we are really concerned about the relationship. Family as business partners can be a double edged sword.
We have supported our children through their costly mistakes and other family members too without expecting return of any money spent (when we get it we are very grateful that "especially with the kids" that we raised them right) and this has been much bigger money risked than many of our RE investments. Often we just are doing it becuase it is the right thing to do and chalk the money off as gone.
But business is business. Family or not.
To really teach anyone else they have to be willing to learn, especially family. Organising a "business" investment (this is something done with another for profit) is the smartest thing to do. It does not say you dont trust them, not supportive or greedy it says this is business arrangement. I see nothing wrong with proving to them what they believe, that you are a smart business person.
Together my partner and I have 5 kids, 5 grandkids, 6 bros, 5 sis and many many extended family members, I know from whereith I speak.
It is also amazing to us that many of them have in the past made more money than us but because we are more wise with how we use ours we have always had more to show for our work. This has always given them all this strange impression that we are rich and have the money to just throw away so why pay us back. Sad but true.
There were times when we struggled to buy groceries and they hit us up for money not believing we were broke. oh well.
Stick to your guns makinaliving, don't take things posted personal we all have different life experiences and ideas. God will work it out for you anyway.
Wait a minute! If the numbers are accurrate, this could be a good hard money deal.
The "partners" each put up a portion of the money for the points, escrow, etc..
At $120 FMV they can borrow at least $78,000 and get at least 65% of the "as is " value funded at closing. Points will be high, maybe 4% to 6%, 9% to 14% rate and term loan for 12 months, open escrow for $500 blah, blah blah. So they both come up with a few thousand bucks to make the loan. The difference between 65% of the FMV and 65% of the "as is" value is held in escrow for repairs, etc..
This makes it a fair and professional deal.
Makinaliving- Just tell your son that he'll collect 50% profit when he puts in 50% toward the deal. Period. Either 50% money, or 50% work, or 50% materials, or some combination of all the above. Anything less and the profit split should be lessened accordingly. Obviously, the tricky part is determining how much his contribution is worth.
Where is it written that Mom has to bend over just because it's your son? I'm sure you've done enough bending while raising him. He's a grown man, and it's high time he stops using the "entitlement mentality" just because he's your son. I think you're absolutely on the right track with the split you have in mind.
Good luck!