Different Interpretations caused a rift. What's your opinion?

verbal agreements can sometimes lead to misunderstandings, like in your case...

I like to put things in writing, a simple contract that spells out the details of our agreement; especially with family and friends!

If you will need this person's money for future deals (until you can build a bit of capital to put up your own EM); I would try to patch things up. Ask him if he's used a contract with other investors in the past that he could share with you?

Also, you should NEVER lose your PM's EM on a wholesale!! that's why you have an exit clause on your contracts, like a 14 day inspection subject to partner's
satisfaction??!!

lastly, your PM is right on this one; you don't include the EM as part of the profit.

good luck on your future deals!

In writing of course will let everyone know up front and be clear. Glad that you paid him even though you did not realize that was expected.

Valerie is right on the button on EVERY single point!

Even if it is family or friends-always have it in writing.

Have your escape clauses.

Also right about he gets his EMD back and THEN you split 50/50.

This is how we all learn. Through our mistakes. I would definitely go to him and admit that you were wrong and that it was a misunderstanding on your art since you are new to the game. Maybe he will even agree to mentor you.

Good luck!

Karen

Appreciate the response. In this case, this was a NON REFUNDABLE deposit. It had to be that way for me to get the contract from the bank. That is why I looked at it as an investment rather than a loan. If I had failed, he would of lost it and I let him know he would not get it back and its part of the risk.

Do agree about the in writing stuff! Lesson learned!!!

always, always get ever thing down in writing and get it signed by each party and then if something goes wrong you have it in front of you and them, and make sure each party gets a copy of it and if you should have to go to court you have a leg to stand on, let me repeat, "always get it in writting", its just a good policy and everyone knows where they stand and its a very good buiness policy as well, wishing you all very well and much success, Jim

Your private money lender had it right. It's usually always assumed that profits are calculated AFTER the original investment has been taken into consideration.

Let's say you made 2k off the wholesale for example purposes. Your private money lender put up 1k for earnest money, and with your math they would only get paid 1k back making exactly 0% on their money, and you made a 1k profit?! That doesn't sound too beneficial to the private money lender! In their eyes, you stole all of their profits away. Remember, you want win-win-win scenarios here, and that's what's going to get you repeat business.

Let's do another example. Let's say you made 10k off the wholesale. Your private money lender still put up 1k, but with the way you did the math originally you are only paying him back 5k in this example, so his profits are 4k (math: 5k - 1k) and your profits are 5k (math: 5k - zero).

The correct way to do it would be to set aside 1k for their original investment, then split the 9k, therefore you get a check for 4.5k and they get a check for 5.5k, making BOTH of your profits 4.5k (aka 50/50).

And as everyone else pointed out, get it in writing!

Hope that clears it up a little more.

You should always have an escape clause in your contracts with a 14 day inspection period. That gives you 13 days to back out with your earnest money being 100% refundable. It only becomes nonrefundable after that inspection period is up.

details spelled out in writing = no confusion

a 'verbal' contract or agreement is NOT worth the paper it is written on

Hello ,

There wasn't a way to get this property without a non refundable EM of a significant amount due to the fierce competition for it. Please trust me on this one. This is why I set it up as an investment . because there was a risk of losing the entire EM. But it was a potential of a very large profit. (Which was proven)

Does anyone understand my point of view or am I just crazy for thinking outside the box?

If you were going to invest in say a coin collection, and you sold it for a certain price, the profit is calculated only after subtracting the cost. Am I just totally off the wall and bizarre in my thinking? I have to question if I am just stupid.

I can see if I told him I would pay him a 20% interest rate how it would be plus the original investment because then it was a loan. But I told him I' ll pay him back half the profit. I just want to see if my thinking is so different that its impossible to understand ?

If the purchase price of the property was $100,000 and he put up $50,000 in earnest money and you wholesaled the house for $120,000, if you are splitting the profit 50-50, how much do you think the investor should walk away from the deal with, and how much should you walk away with?

Good way to look at it trsd, and his wife brought up that point . But this was pretty much a no brainer. There was so much equity in this property there was no way I wouldn't have more than at least doubled his money. There wasn't a way I wouldn't have rested until it was wholesaled. This deal really was that good and I knew I could get an amazing return for him. I actually was so excited to be able to show this guy what I could do, That didn't cross my mind. I've conditioned myself so much on the positive that the negative wasn't an option.

I've been doing real estate long enough to know stuff with real estate values, but I never needed someone else for em before. In the event that would happen, which would have been absolutely nonsensically crazy, I know I would have given him the profits and em back as a good will because thats how I am. But It would have been better than losing his money. But, this deal was pretty much a no brainer where I am at and I didn't flinch on my fees. Deals like this just don't come around like this. I'd really have to not know anything in order to have not at least minimally doubled his money. So it never crossed my mind. :'(. I guess intentions do not matter.

It is good to put up a bio on here, so others can get to know you and connect with you!

I couldn't find it in edit. Then I saw there was another edit tab. Thank you

Problemsolvers, I don't understand your your line of thinking that your PM person was making an investment...He gave the money knowing that he may lose it but if you sold it how is not getting all his money back and investment? Also with your coin collection ananlogy, you calculate the profits AFTER you subtract what you put into it. If you get less than you paid for it, it is a loss, did your PM make a profit or a loss?

What happened I didn't post twice?

That was the poin of the coin collection analogy. You get your profit after what is put into it. In this case, he put in $x amount and made more than 300 times what he put in, which includes subtracting what he put into it.

It was not a loan because a loan gets paid back whether there's a loss or not. This is my crazy thinking , at least I guess it's crazy.

You give us some real numbers. Maybe then your point will be more well received.

put 'em out

Em $8k
Net profits on wholesale $54k
Pd him $27k , which I thought was an amazing return for him. : (

You didn't provide all the numbers so I can't be 100% sure, but I'm assuming you mean you got a 54k assignment fee, or even more likely a 54k check through a double close. If that's the case, your net profits are actually 46k. Why are you discrediting earnest money as an expense?

Net profit = ALL money received - ALL expenses

He should have got a check for 31k (half profits + earnest money), and you should have got a check for 23k (half profits).

Another way to look at is if you both got a check for 27k, that would make your profit 27k (27k - zero) and his profit 19k (27k - 8k) So what is 27k plus 19k? 46k, not 54k.

In reality you were unknowingly trying to do a 58.7%/41.3% split, not a 50%/50%.

On a side note, that's an awesome profit and congratulations! But I must ask, what kind of investor puts up 8k knowing that there's a very good chance they might not see it again? Although the deal paid off, it was EXTREMELY risky. I would never get into a deal I planned on wholesaling knowing that my (or especially someone else's) earnest money wasn't refundable, and to top it off a whopping 8k?! Never go above 1k for earnest money if you can help it.

I'm glad it worked out, but dang that's some unnecessary risk you're taking on!

I agree with you and the lender. But just like the old saying in real estate goes, "pigs get fed, hogs get slaughtered." It sucks when people try to use only your word as a "binding agreement" because it always goes sour sooner than later. All in all, yeah, just do a Joint Venture agreement so nothing ever gets confused. Contracts even help keep people honest, cause if someone is too scared to go into a JV agreement with you on a deal, than what do they got to hide? lol

I think you have your answer. Don't let 8k stand in your way of future possibilites, what if your money guy was so happy with the return that he wanted to fund more deals? Now he isn't gonna do business with you again.
He deserves the 31k he made, afterall he had all the risk.

On a more positive note. Holy Cow! What a great wholesale deal, here's to getting a couple more of those. Congrats.

If you didn't need the PML and purchased a property for 100k and put 5k as earnest money and wholesaled the house for 105k, would you expect to get back 5k at closing? No, you would expect to get your earnest money DEPOSIT back plus your 5k profit. That's what your investor expects.

There was no transactional finding. Buyer fundedh it all. It was just the intent I worded with was to pay 1/2,the profit because I looked at it as an investment. I guess I did it totally wrong and should have agreed to pay him a 20% return on his money which would have made it a loan instead of an investment. I just guess no one can understand my thinking at all and my way is not a way of doing it.

I am in Southern California. This was an $800k house. (Worth over $1.7m) Competition here is fierce. Deals here don't come as easily as in the Midwest. You do what you have to to get a property here. Higher em and non refundable is not uncommon if you can be sure it is a really great deal to defeat the competition.

My partner knew he could lose his money. He knew there was a possibility of not just a risk, but a complete loss of it IF I couldn't wholesale it. He believed in me and my numbers and was willing to take the risk. I told him it was non tefubable if I failed. But I told him half the profits would be his and what I was aiming for. I did look at it as a partnership. But I messed everything up. I ruined my trustworthiness by not getting this right even though I wasn't aware I did.

My mistake was not explaining myself thoroughly. I didn't spell out that I looked at it as a return on investment because I didn't realize my thinking wasn't right. Guess there is only one way to do things. Guess I messed up big time. I thought maybe someone would understand my thinking here but I guess he is justified in thinking the worst of me because I looked at it differently. Lesson learned! Sometimes thinking outside the box is not good thinking. And thinking how phenomenal he must feel to have more than tripled his money in a few weeks I guess wasn't a good thing for me to think either. I meant one thing, he meant another and I guess I screwed up and I'm so out in far left field noone can see my point of view. Man I just can't believe I could be so incredibly stupid.

I gave him $35k because I did give the $8k back to him because I value the relationship more than the money. But I don't think he can see past the fact that I screwed up and thought of retry em on investment instead of interest paid on ableism where you give principal back. I understand full well now. But too late. :'-(

I gave him $35k because I did give the $8k back to him because I value the relationship more than the money and being right. But I don't think he can see past the fact that I screwed up and thought of return on investment instead of interest paid on a loan where you give principal back. I understand full well now. But too late. :'-(

Btw I did not think of him as a lender. But as a partner. Guess I need to reevaluate how I do things.

But for a loan with 20% interest rate, he would have only gotten $9,600 back.

I don't know if I truly understand how this wasn't an investment and was a loan. Wouldn't someone get in trouble for giving a loan with over a 440% interst rate?

A JV partnership, the amount brought in by the money partner is usually much higher than the profit so I didn't look at it that way. I'm just not sure why my thinking is so bad.

But I do appreciate all the feedback and I am trying to understand it to better myself and my understanding.

I guess you lost me at all the numbers. Was it a property on the MLS or a Fsbo deal?

This one was on the MLS. Bank owned.

You aren't stupid! You made a mistake. We have all made them. That's how you learn.

You are right about many of the deals that are even able to be found in SoCal do require nonrefundable EMD and very seldom, unless it is a FSBO, are you able to get by w only a $1K EMD.

Now shake it off and go get another deal! That was an awesome one!

Karen