This Is What You Should Be Aware of When Investing With Family
Investing with family can be complicated. In this episode, discuss things you should take into account when investing with family and some of the agreement structures that are common for this. --- Michael: Hey everybody. Welcome to another episode of the remote real estate investor. My name is Michael Albaum and today I'm joined by, Tom: Tom Schneider Emil: and Emil Shour. Michael: And today we're going to be talking about partnering with family to do real estate deals, this can often be a hotly contested and debated topic. So I'm curious to get everybody's insights. Alright, let's get into it. Alright guys, family, money, sex, drugs, rock and roll, all the cool things, all the fun things we want to talk about in the show. Have you ever done a deal with a family member? Tom? Tom: I have not I've approached family member but I think my family is generally a little bit risk averse and doing this kind of work. And that's okay. I you know, I've heard horror stories of friends doing stuff with family members were friends that it's gone south, but I personally have not done so. I'm going to be sniping in some some questions and maybe throwing some pessimism shade. But I've heard of people being successful. But anyways, long answer No. Short answer long. No. Michael: So when you say that your family is risk averse, does that imply that real estate investing is super risky? Tom: I think that it's fear of the unknown. Michael, if you're not familiar with it, it's can make you concerned that… Emil: It is a very common consensus. Tom: For sure. We'll have to kind of drill into some of that on another episode, but not risk averse. But just yeah, fear of the unknown. That's where I'd say my lot my family, I think a lot of people like a lot of them, like get it and want to do it. But man that going from zero to one is a pretty big move. That hasn't happened. Emil: Yeah, everyone has heard that horror story too, right? Like, oh, I had a friend who bought real estate and it became a crack house. And then it's like, okay, we're gonna pull the one. Everyone's heard that story. And so I think that's where the scariness of real estate is coming from, right? Michael: No one ever says like, Oh, yeah, I had a friend into real estate and worked out really well. So I want to do it now, too. Tom: Yeah, I mean, I think with a lot of people, it's fear of like, looking like a dummy, you know, and like throwing money away. And I think anytime you're quote, unquote, like making moves, like there's some risk for that. And a way to think a lot of people is just turn into a turtle and just do nothing. Michael: I like turtles, Tom: Nice throwback, cultural reference. Michael: It's interesting. Like, I would argue more people invest in the stock market, via retirement accounts, or via taxable accounts than invest in real estate. And so it's almost become normalized to say, like, oh, man, the stock market went down. So I lost a bunch of money today. And I was like, Oh, yeah, like that happens. That sucks. Versus in real estate, I think because there are less people doing it, it's probably talked about less. And so people are getting less exposure to it. And so they don't want to be that one person that looks bad, who went and lost money in real estate versus all their friends, family, whatever other acquaintances are losing money in the stock market, no one thinks twice about it because it's been normalized. Tom: Yeah. It's like what weighs heavier like the aversion for loss? Or the what's the opposite of aversion? Michael: Wanting? Desire? Tom: Desire, there we go, versus the seeking gain seeking. Yeah, aversion is a very strong force. Michael: I think loss aversion is stronger than gain. I think we did a book club at the Roofstock Academy, where we were talking about negotiation and that kind of thing. And people's loss aversion is a stronger driving factor in their decision making than ability to win and gain. Tom: I think it's not just loss aversion, but like aversion to looking like a dummy. You know, like, you don't want to be that person that the family talks about, like, oh, Tom, you know, he put all his chips on XYZ and lost it all. Michael: We told him it was silly. Tom: Yeah, it was silly. But anyways, no, so have not done deals with my family. I think I'm the only one in my family network that has drank the kool aid the sweet, sweet kool aid of real estate. Michael: Okay, Emil, what about yourself? Are your lips sticky with kool aid? Or have you gotten other people to, to enjoy with you? Tom: Do you share her kool aid? Emil: I don't. I don't like germs. I have spoken to family and I have family who is interested and ready, but I haven't found anything where it makes sense. And I haven't needed to include anyone yet. So I've had the conversation. Have some family members who are interested for when the right deal comes along where we need some extra capital they're interested in you know, I've set up some terms with them like we've gotten all the groundwork done like what they're interested in, how I think I would want to structure it. So had a lot of that conversation just haven't pulled the trigger because we haven't found any things investment sure Tom: Question for a meal or in moving forward with this. If you had to say the kind of the push the impetus is it more you looking for another capital partner or is it more Your family or friend wanting to participate in, in the kool aid of real estate investing, Emil: I think it's more so me requiring capital. And obviously, I'm going to offer them attractive terms better than some of the other invest… like, my family who I'm talking about here. They have other investments that they do on like the lending side. So they'll do, it's not like hard money lending, but it's this company that issues loans to people who have a harder time getting lending, so the interest rates higher. So they usually get like, I don't know, six 7% annual return. So I'm thinking, you know, how can I offer a, an even more attractive return so that they'll want to invest with me if I need that money versus going and putting it with this other company? So they have some experience investing in real estate notes? Yeah, direct real estate, but with me, it would be like a note where I would pay them back, I don't know, maybe in 12 months, or whatever, depending on the type of project we take on. Michael: So that would be a debt structure as opposed to an equity structure, Emil: Correct? Yeah, right now, it's only been talks for a debt structure and not like a JV type partnership. Michael: Okay. And out of curiosity, why is that for you? Emil: Um, for me, it's probably just my control freak nature, I would rather just be the one in the driver's seat and not having to really answer to anybody and really make my own decisions, rather than, you know, you include people and they get a right to make those decisions, too. And that's not what I'm looking for with my real estate investing. So if it requires me to grow more slowly, because whatever, I'm the only person in the driver's seat, that's fine. But there's people who are interested in just the debt side of it and don't want to do any of like dealing with real estate or the operations or whatever. Michael: So is there a way to structure it where they have an equity position, but can still maintain that positivity? Emil: I'm sure there is. I approached it from a debt structure, they were cool with it. And that I think, works for both sides. So I didn't even you know, think about exploring kind of other avenues. Michael: Yeah, makes sense. And for people listening, that are sports fans, that might not know what the term JV means in real estate, what is JV? Emil: So that's a joint venture, that's where multiple people are pooling their money together multiple names on title multiple names on the LLC, or whatever it is holding this property. So they own the property as well, versus this would just be me owning it, I have like a note with them a debt obligation to them. Tom: And continuing to do the just the definition game before going back too far. Equity versus debt. So debt would be just someone who's just acting as a bank, they're not they're not on title, they're not you know, in a JV, it's just straight borrowing money from that person, where equity be equity is actually participating in the upside of the of the real estate. So debt would be like a confirmed amount on what you're paying back, you know, to that person, you're borrowing from where equity, it could be variable, there's risk, you know, perhaps the person who's loaning money loses money, if they're, you know, structured in an equity way, versus debt. It's just a flat percentage, or however that is structured. And there are pieces I should, we're missing in my explanation there, guys? Michael: No, I think that's great. But just to kind of bring it all home is If so, Tom, if we're in a debt structure, partnership, and I'm going and buying the deal, I might borrow $100,000 from you, and I'm going to pay you back X percent or X, you know, dollar amount monthly, based on your preferred return whatever you're trying to achieve as the bank. versus if I were to go into a LLC, I sell that property for 200. Grand, I just pay you back what's outstanding of that note of 100 grand versus if a meal and I were partners were Equity Partners. And I bought that same property for 100 grand and we were 50% partners, went up to 100 grand Emil would share in that profit as well versus you, Tom, as the as the debt partner would not. Tom: Why you gotta leave me out like that? All right Mike, your experience, partnerships, family friends, yeah, Michael: So I've done a bunch of stuff. My very first deal was a debt partnership with my family, they loaned me the money to purchase that first property. And that was worked out great at the time, interest rates were so low, I mean, interest rates are still so low, so they're able to get a better return than having their money sitting in the bank. It's a very safe investment with me, because they know where I live if I were to default, and it's secured by the property. So there's really very little risk involved for them. They didn't have to do the true traditional underwriting that a lender would traditionally do on somebody to determine, okay, is this person a reasonable borrower, because they knew me and stuff. So that was a really, really great win for both sides. Tom: How long? You don't mind what what were the what was the length of terms of the debt? Michael: Yeah, so the term was interest only for five years, because I borrowed more than 20% to help me get into the deal. Because I was just coming out of college, I didn't have a ton of cash. So the mortgage payment, the fully amortized mortgage payment would have made the property negative cash flow. So my dad helped me do is he's like, Okay, well, what if we just do interest only that significantly reduces your monthly payment amount, and then this property will cash flow. At the end of that five year period. Hopefully the rent will have increased So that way you, you'll be able to support a full mortgage payment. So that's happened, I've opted to continue with the interest only route just because the cash flow is really killer and the appreciation is quite rapid. And so instead of paying it down, I have a better use for that cash flow elsewhere. At the end of the lifecycle of that property, whenever I ultimately sell it, or at the end of the next five year term, I'll either go to a fully amortized payment with principal and interest. Or if I sell the property, the loan balance has remained unchanged over time. I mean, it's an expensive way to have access to capital. But it was the only way that made sense for me. And it was the only way I could get into the deal. So I said, Okay, it makes sense. Let's do it. And it worked out really, really well. Tom: Opportunistic. Michael: Yeah. Emil: When you structure this, do you put your family on title? Like, how do you kind of is it just like you have a contract? And it's just you making payments? Like, how do they get in on it so that they feel secure? And everything? I'm curious for my own? Michael: Yeah, so it can it can be one of two ways. So one way is just to have a promissory note that everybody signs and says, okay, yes, Michael Albaum is on the hook for this dollars. And it's, I mean, it's a contract. So if I don't make a payment, there's a late fee. And if I don't make the payment after the late fee, then they probably can get foreclosed on. And depending on how you want to structure it with your partner, or the family member or friend is they can actually have take a first deed of trust on the property and record that as them being the lien holder. So if things go south with the relationship, and you just decide to not pay them, they actually have they can take title to the property quite easily. And so then you have to have them as a mortgagee on the insurance and on title and all that kind of good stuff. It can go a number of two ways. The promissory note is definitely the more informal way to do it. While it's still formal, it just is less eyes on it, I guess you could say it makes it a little bit easier. versus doing the recording is is a little bit more hands on. That was one deal I did and then I partnered with my brothers, we bought four duplexes out in the Midwest. And so I bought two and they each bought one and we formed a multi member LLC. And so we kind of pooled our money together, we talked about a couple different ways to structure it. And the reason we did that is to get a killer deal on these four duplexes, because basically, we bought a mini portfolio, they were all bank owned foreclosures. And so we said, okay, we'll buy all four of these from you, bank, give us a killer deal. And they did. So in order to do that, we had to form this multi member, we didn't have this multi member LLC, boom, it was much easier to do, because now it was just a single transaction as opposed to, okay, my older brother buying his one, my younger brother buying his one and me buying my two. So that was a really great winner as well. And now what we decided to do is share the expense load, because the properties had slightly different property tax rates, for whatever reason, even though the purchase price was all the same, we knew that they were going to have slightly different expenses from one month to the other. So what we did is we said, Hey, you know what, let's just pool the expenses across all of us. I'm a 50%. Owner, my two brothers are 25% owners. So it's almost like a co op in that regard. So if you know, my elder brother had a really bad month, this month, we all share in that loss versus if it's smooth sailing across the board for everybody. Everybody comes out ahead. Tom: I got a question for you, Michael, I love the way this is working out. We're just kind of go into these use case, because I wrote a bunch of questions ahead of time. So the amount of work that it takes to operate and do the acquisitions and all of that, how did you guys determine that upfront? And is the person who's doing more of the work getting compensated? How do you structure that? Michael: Great question. So typically, in that type of arrangement, if these weren't my brothers, I would have asked for, what's the word? Emil: Acquisition promote? Michael: Yeah, kind of like a promote, which is basically just the work involved for putting the deal together. And so it's family. So I was like, yo, whatever, you know, we don't need that, I'm happy to do it. And I was actually already in the area for other reasons, anyhow, like looking at another deal for my family. So it worked out quite well. But so for the management of the manager, because there's definitely a lot of ongoing work, paying the property taxes, paying the insurance dealing with the manager dealing with the home warranty, companies setting all that stuff up. So we decided to do a management fee that the LLC would pay the manager which I happen to be, but I had to participate in that payment as well. So I was paying 50% of my own management fee to manage the manager and kind of do all this stuff on a monthly basis. So he said that up until automatically every month from the rent, I got paid a management fee to deal with all that deal with the taxes, accounting taxes at the end of the year, all that kind of good stuff. But so I think it's really important to outline all of that in whatever kind of partnership agreement someone's utilizing. We utilize a multi member LLC structure. So we just had an operating agreement, that outline Okay, who is responsible for what these were the duties, roles and responsibilities of each person? And it was very cut and dry. And it worked out really, really well. Tom: On the acquisition side was it I assume, since you liked the taste of that Kool Aid so much, who was driving the acquisition process? Michael: I was, so I was out there looking at another deal for our family and and happened to come across these other properties. And I said, Hey, well, you know, while now here, I may as well look at other stuff because my family always loved doing things for multiple reasons. So we were already invested. As a family out in this other property, and so I said, Oh, these are these look interesting. And I was making contacts with property managers and agents anyhow. So I came across these and say, yeah, this, this sounds awesome. So put it all together and brought it back to my brothers. And I said, Hey, you guys want you on in? Tom: That's awesome. And so you said your family was already doing stuff out there anyways, I mean, just kind of curious digging into the life of Michael, was this deal done, like before you were involved, or the other stuff that was going on out there? Michael: No. So it was simultaneously. So we were in the process of purchasing a commercial property out there in the Midwest. And so my dad sent me out because I was being physically constructed. And so my dad was like, hey, go check it out. Because that's what I used to do for a living is look at buildings and fire protection, and all that kind of stuff. So he was out there looking at the building and setting up our kind of footprint out there setting up the team meeting with property managers, meeting with agents, just kind of getting a lay of the land, so to speak. And so got in touch with this other residential agent, and hit it off. And after interviewing, several decided this was the one to utilize. And she showed me some great properties. It was interesting, she actually double ended the deal. She had the listings from the bank, which again, they were bank owned foreclosures. So anytime this bank foreclosed on properties, they gave it to this agent. And so she said, Hey, I got these four properties. And it worked out really, really well. And then she stayed on as the manager as well. So I always talk about that in the academy, anytime you can utilize a agent who is also a manager, I think it's a big win, because they're very tied into the sales and acquisition side of the market, as well as the rental side. And an agent gets paid based on commission based on when they transact. And if they take off, you never see them again, you know, tough luck versus an agent, you're kind of hitching your wagon to their horse, so to speak. And so you know, you're in it together. So if they sell you a lemon, they've got a manager, lemon. Tom: Got it cool. Any other examples, or you want to walk through it? Michael: Yeah, so I've. So that was, let's say, we covered debt structure. So I did an equity partnership with a family member, they provided the capital, I provided the deal, and the management and the rehab and all that kind of good stuff. And so we're in the process of selling one of those properties right now. And they get to collect all of their money back plus, hopefully about a 50% return on their money for just providing the money to do the deal. So that's been well knock on wood will be once it finally sells a great win for everybody. And then another property that we bought together, they'll just get to collect cash flow, and literally have to do nothing for it and gets participate in the upside as well for when that property ultimately does appreciate. And we do sell it at some point down the road. So I've done both debt structure and equity structure, they both have their place, they both can be great. On the debt side, it's great, because everybody's making money, the lender is making money day one. So if that's something that they need to do great if they have capital laying around, but they're not sure what to do with it, or how to invest it or maybe not interested in learning how to invest in real estate, but want to participate in the upside that real estate offers, the equity structure can be a really great way to go. And it's nice, because then you don't have that debt burden looming over your head as an owner operator. So especially for rehab stuff, which is a lot of what I'm doing right now, the equity structure makes way more sense, because the properties just aren't cash flowing, because they're being rehabbed. So to not have that looming, it's really nice. Tom: Michael, I'd love to hear what are some of the different terms or I guess, common terms that you've either seen or used, both on the debt side? And on the equity side? And specifically those terms? You know, how long are these typically structured for? And on the equity side? What How is that typically broken up? I’d love your… Michael: Yes, so I've been super fortunate in that I've got very caring, loving, flexible family. So anywhere from three to 6% on the debt side, in terms of interest rate, which is traditionally better than what you're going to get sometimes can be better than what you get at a bank, both in terms of being the borrower, and then also in terms of being like in terms of parking your money there. So for the person doing the lending, there's no way they're getting three to 6% by having their money in the bank. And as a borrower, there might not be any way I'm getting three to 6% depending on the asset and timing of the loan. So it can be a really great way to go again, kind of a win win. And then on the debt side, I've just done 50/50 partnerships where people plug in, they pay for the acquisition, and most or all of the rehab, I take care of everything else. And then we just split everything down the middle 5050. And that's worked pretty well for me in the past. So it all kind of depends on each person's individual situation and what their individual goals are. If like Emil, you were mentioning, you're borrowing from family that's doing hard money lending, they have an opportunity to make, you know, 567 percent so you might have to offer more attractive terms versus the person that just has their money sitting in the bank because they're scared of the stock market and they don't know real estate, you know, they might be thrilled with a two and a half, three 4% returns, that's way more than make it in the bond market. And then as far as as structuring, they typically just do fixed 30 year financing and Basically locks in payments to that family member for a long time. And of course, because we're family, we try to be flexible. And we all understand that there's money involved. And that can often complicate things, but we all talked about, look, if anybody feels like they're getting taken advantage of, or things aren't working out, let's talk about readjusting this. Because if interest rates go up to 15%, and somebody can get 15% by just parking their money in the bank, well, yeah, there's gonna need to be some conversations had to adjust that. So that's the nice thing about doing this with family is that you can be flexible, you're not beholden to the Fannie Freddie rules, you know, this is so much less regulation and eyes on it. It's just whatever is gonna work for everybody involved in the deal. Tom: Have you ever had a deal go sideways, or had some like major issues, I'd be curious to learn about experience in conflict management, but just like you're doing this partnership with somebody and things are going poorly, some one recommendations and to maybe some case studies or experience in managing when there's issues. Michael: Yeah, so might not be the best example. But this most recent deal that I worked on with a family member, where I was at 50%, equity partner, they put up the cash to do the deal. There was a contractor that we had involved to just was not working out well at all, he had all the right answers for all the questions, and then turned out to be a total slime bag. I mean, on the verge of criminal, so it did not go well, needless to say, but he was who we were planning on utilizing for a lot of the rehab on the building when we bought it. And so I was running point, giving updates to the family member that financed the deal. And I had to come and say, Hey, you know, this didn't work out. This isn't go as planned, we were supposed to have everything turned around in six months for X dollars. Well, that didn't happen. So I basically fronted all of the additional costs to get it right. Because the way it worked out is that we just we didn't get the rehab done. And so things were slowing, and the building was eating money. And the rehab wasn't getting done until we weren't generating additional revenue. And then property tax payments, hit insurance payments hit so everything happened at the worst possible time. And so I, you know, I could have gone back and said, Hey, I need more money. But I made a commitment to my partner. And I basically said, Okay, I'm going to eat all this cost all the additional costs and fund the rest of the rehab that you thought you had funded already. So to make it right. And so that was a really big punch in the gut to just not have things go well, but being honest and transparent was by far the best way to go. And my partner was very flexible. They understood that, okay, this is real estate, they understand construction, things are always more expensive and take longer. But this was just one of those instances where things went really sideways, and you're playing with other people's money. So that to me has a much bigger weight on my shoulders than if it's my own money. So I said, Hey, I'm going to go make this right, I'm going to do right by this partner and suck it up and deal with it. Tom: I love it. I think it's kind of a general takeaway in these like communications is so important, open, honest, constructive, real time. And you might have mentioned this in a previous episode, but I love the Four Agreements by Don Miguel Ruiz, and it's the the four agreements are, be impeccable with your word. Don't take anything personally. Don't make assumptions and do your best I think, as a general credo for life, and then also partnership is a good way to go with. Go ahead, Emil, I see you jumping in. Emil: Yeah, one other takeaway I thought might lay your your thoughts here is like if you're doing this, either have some of your own money set aside, or raise a little bit more as a buffer in case things do go sideways, you don't have to go back and make I guess what's called like a capital call, right? Like projects going extra, you don't want to go back to your investor and say, Hey, we need more money makes you look bad, it makes it likely that you're not gonna less likely that you'll do a future business with this person again. So like just having some money set aside in case some things do go sideways, whether it's your own, whether it's the money you get from them, just having a little bit of buffer for things that do happen like this. Michael: There is such a difference for somebody, if I go to you and the owner and say, Hey, Emil, I need $30,000 to do this project. Really great, cool. 30 grand, here you go. And then I come back to you a few months later and go actually I'm able to project perform really well. Here's five grand back, you're like, Oh, awesome. Michael crushed it. As opposed to Hey, Emil, any 15 grand to do this, oh, three months later, by the way, Hey, man, I need another 10 grand to get this done. And you're like, what? So at the end of the day, it's still 25 grand out of your pocket, but to under promise and over deliver as opposed to doing it the other way around? is I think so huge. So that's for sure been, like my biggest takeaway is things will go wrong. They will go sideways more than you think. And it'll be more expensive and take longer than you anticipate. So just be ready for that, especially with construction. It's just one of those things. So with partners, you want to be over deliver. Tom: One more question for me, and I'd love I know, Pierre is looking into doing some stuff with family members as well. I'd love to hear some, you know, give him a chance to have some self serving questions. But my last question is related to initial kind of prenup or contract that you have. What aspects Do you think it's really important to get into writing upon making either a debt structure or an equity You know, just to specify make it super clear upfront, I'd love to hear your input on that, in that that prenup, but you know, I'm saying… Michael: Yeah, yeah, just like, like an operating agreement, essentially, if it's a form LLC, or how you're going to operate things if it's not an LLC, so I think it's super important to just have everybody understand what the expectation is around their dollars, whether they're putting money in or they're expecting money out, how long is this money expected to be tied up? And how do you see decisions get made? Is it majority number of people who vote is it whoever put in the most money that gets to control the decision making is it whoever is the manager who may have put no money in so understanding the roles and responsibilities and duties of every person, I think is really important. And having an understanding of who's responsible for what and how power is distributed, so to speak, is really, really critical, because unmet expectation is really what leads to friction in relationships. And so if you talk about all the expectations, again, for time and for money, and for roles and responsibilities, that tends to alleviate a lot of things down the road. Now, of course, you're not gonna be able to think of everything, you're not gonna be able to anticipate every situation. So planning for the worst, but hoping for the best with whatever you're aware of is great. And then talking to other people that have done partnerships, because that's a blind spot, like that was a huge blind spot for me was not anticipating the property taxes? And what if the contractor doesn't work out? And what if this goes longer than expected? So now that's less of a blind spot for me still working on it on a regular basis. But if I had talked to somebody that had done this exact thing a little bit more in detail, probably would have worked out better? Tom: Nice. Yeah. Pierre, do you have any self serving questions you want to ask? Pierre: We're just talking about this yesterday, trying to figure out a payment structure, what’s a fair payment structure that he could pay me for the time that I put into what we're doing, we still haven't come to a conclusion yet. But we want to make sure we have some sort of contract so that no one's feeling… I mean, my brother is very generous. So he doesn't want to feel like he's using me. But at the same time, I feel a little bad, because I don't think I'm bringing massive value, if you hired a asset manager, they'd be a lot better at doing what I'm doing. for him. I'm just like bumbling around trying to figure this stuff out with him. And so Asset Management do like one to 2% of monthly income. And so if there's only one property, and I'm only working on one property, that's pretty low for me doing but then at the same time, I'm not bringing that much value compared to what a real asset manager would be bringing in, like Tom says, short story long, I don't know what the heck we're doing. Michael: So you can do it a couple of different ways you can do an asset management fee. And you're right 1% of one property is not a big deal. But 1% of five properties is starts it gets pretty sizable. So you get to grow together as a team in that you get to build your reputation and experience level on that one property. And you're right, if you're not bringing much value, why should you be getting paid this, you know, a whole lot of money. And so you have to think of it too, from not necessarily his perspective, because he is your brother and his family he loves, you know, that kind of good stuff. But as an owner perspective, right? Why would an owner be paying someone 567, whatever is a sizable amount of dollars, when there's not a whole lot of value being brought to them. So you can do an asset management fee. And then you can also do like sweat equity, because you're putting the deal together and doing all the legwork. So and participate in the upside. So maybe you know, 5, 10, 15%, whatever of the upside, when the property sells or gets refinanced above and beyond the profit you get taken advantage of. And so you're putting in all of this effort and value into the deal, not seeing a whole lot of return today. But when your brother sees a lot of return, that's when you that'll manifest itself. And so I actually just remembered, this reminded me, that's what we did with that duplex deal I do with my brothers, I didn't charge them anything on the front end. But when they go and sell the property, I get X percent of the sale price as my feet for putting the deal together. So they're obviously winning, because they're now selling those properties. And so then I get to participate in that upside as well. But so it's kind of a win win. Again, it kind of hitches my cart to their horse, so to speak, and if they don't sell well, then Okay, then I don't get it anything. But at some point down the road, I would anticipate them to sell these properties. And if not, that's okay, too. That's great. We all got a big win. So think about doing something like that as well and chat about it with your brother. Tom: Yeah, you know, it'd be an interesting way that I've seen here and it's kind of similar to Michael Zoomers model is if you're doing it when you sell like maybe your brother gets the first 10% of profit. And then you guys split after that. There's a lot of flexibility in the way that these can be structured. But I'd say on the acquisition side, like right now, it's so valuable the value that you're getting, getting and going through this exercise and kind of building that confidence that there's it's pretty awesome. It's important. Pierre: That's kind of how I feel about it is that I'm very thankful to be participating in this with him. It's I'm learning at time so that when it's my turn to do a deal, it's not going to be my first. So another thing we're talking about is just you scratch my back, I'll scratch yours when I go into a deal, he's going to help me the same, you know, we're just going to be working together when I do my next acquisition. So yeah, this is helpful. I'll hash this out with him. Michael: Yeah, yeah. And you can think about, you know, you can do a percentage, you know, 1%, or 2%, whatever asset management fee, or you could do a flat dollar amounts, the nice thing about the percentage that it grows over time as the rent grows, but if, again, if it's just one deal, you could just say, Okay, let's do whatever a flat fee, we're comfortable with this. Yeah, just another thing to think about, and take around. Tom: This is what I without giving recommendations, this is what I would recommend, I would recommend, like a very small percentage of the acquisition price as sort of like a finding fee and like doing that work, because that is like some pretty significant work, like maybe a half of 1%. So that would that if you're buying $100,000 house, that's 500 bucks, you know, not and then I think and then at the exit, I would book ended, I would do something on the front end, and then from something at the very end, and that way you're not… Pierre: and no fee monthly? Tom: No, no fees monthly, just so it's, you know, so keeping the operating costs low. And maybe, you know, if he's planning to hold it indefinitely, maybe some like option for you be able to pay him to get equity, if you want to in like five years, you know, at a predefined amount. I mean, what's so fun with these deals is it's very much a white canvas in the way that you structure them, my recommendation would be the book ends with an option to get some possible equity on the inside. Pierre: I think that makes a lot of sense. Because once you own the place, then there's going to be long periods of time where nothing is happening. And I'm not going to need to be doing a ton of work until we're going to be in the market to buy another place. Yeah, so it doesn't make sense for him to be paying me unless we're actively working. Michael: There will be active work going on, especially at the beginning with dealing with the property manager and getting the system set up and dealing with the accounting side of things. So there will definitely be stuff. But I think Tom said I think the vast majority is the legwork done on the front end getting to the acquisition point. Pierre: Yeah. The other thing is that we see this kind of as a partnership, and he's not making money right now. Why should I be making money right now when he's the one putting up the capital? I don't feel right taking money right now, because you're not making money right now. Let's get a deal and contract before we think about putting money but it'd be nice to know what the money is going to do when it's time for it. Tom: Yeah bookended and give yourself an option to get on the equity. I think for the work on the acquisition side, I think it's reasonable to take a you know, whatever a finder fee or whatever, when so when I was doing acquisitions for one of these rates, you know, that's our bonuses would be on, you know, acquisitions. And do you want to get really creative you could do some sort of bonus on how quote unquote good of a buyer it is, but I don't think you need to get that creative. It's like a family member. Just something simple and right, you know, simple and fair. So.. Pierre: Sure. Thanks guys. Tom: Exciting stuff Pierre. Exciting stuff. Michael: Totally. Very exciting. Alrighty, everybody, that was our episode for today. Thanks so much for listening hope that was valuable for people that are thinking about partnerships or that are in partnerships and how to structure maybe restructure them. If you liked the episode, feel free to give us a rating and review wherever it is you listen, your podcast has really helped us out quite a bit. We look forward to seeing the next one. Happy investing. Emil: Happy investing.