As you know, I buy lots of houses. Each house purchase is funded by a Private Money Partner. Because I have been doing this for so long, I know my specific investment criteria on each and every deal and I relay it to any and all potential Money Partners.
My Private Money Partners can fall into 1 of 2 categories:
1. Debt Partner
A debt partner makes a loan for a set payment and does not participate in the profits of the deal. Let’s say I agree to buy a house for $350K. I’m getting seller financing for $250K and my Money Partner is wiring $100K from her Self-Directed IRA account to the closing attorney for the purchase.
When I sell the home, the net profits come to me. My Private Money Partner gets the rate of return which we agreed upon. That is a simple debt partner example.
2. Equity Partner
An equity partner differs because he provides the purchase capital in exchange for a share of the profits, cash flow or equity. Let’s say I agree to buy a house for $100K with seller financing of $90K. My Money Partner wires $20K from his Self-Directed IRA account to the closing attorney for the purchase. But this time the Money Partner is a bit greedy and wants a bigger piece of the “pie”. Probably because we have history and a track record of completing multiple successful transactions throughout the years.
So we agree on a 50/50 split. If we have another terrorist attack and the economy goes to crap and I don’t make any money on the sale then my Money Partner doesn’t make any money. If the deal creates a profit of $200K then he/she gets $100K plus the initial $20K.
********************************* If you are reading my blog for the first time, let me inform you that… My company buys single-family houses and I write this blog weekly which is primarily directed to educate 1 group of individuals:
Individuals who are losing their shirt as a result of the “roller coaster” volatility of the stock market and low paying rate of other traditional investments, i.e. people that are looking for an opportunity that’ll provide a secured place to put their money to get it working for them to earn better than average returns.
However, often times, homeowners that need to sell their house, stop by to take a peek because they are curious and wondering how and/or where we get the funding to purchase houses. And if they stick around long enough, they begin to understand why individuals partner with us to provide the funding which empowers us to be able to purchase real estate on a continual basis. Simple, it’s because we teach them a secured way to earn better rates of return than they are currently earning.
So everybody wins. It’s a WIN-WIN-WIN !!!
Request your FREE Education Kit if you are interested in learning how passively investing in real estate may help place you in a better financial position.
Disclaimer: This site is intended for educational purposes only. I am not an accountant, attorney or licensed financial planner. While the information I’m writing here is based on many years of experience buying houses that doesn’t really constitute professional advice (since everyone’s experiences and situations are different).