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Referral Fees

This topic contains 21 replies, has 0 voices, and was last updated by Avatar of lisafriedman lisafriedman 12 years, 1 month ago.

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  • #4062
    Avatar of lisafriedman
    lisafriedman
    Member

    Hello. Newbie here. Investor beneficiary in process of completing my first trust.

    There is someone who attened Bill’s seminar with me but did not join the program. He is offering me a lead for a home worth about $320k with a $280k mortgage. He is asking for a $10k referral fee which I think seems a little high. Should I base referral fee on amount of equity in the house or on purchase price? What is range of referral fees that you fine folks out there are paying? Do you work on a flat fee or percentage of equity/sale price and what would that range be? He is not interested in a beneficial interest but would like an upfront fee at time RB moves in.

    Thank you in advance for your responses.

    #23289
    Avatar of areyes
    areyes
    Member

    hi lisa,

    do you have an RB lined up and ready to go?
    did this person just refer the name only or is it under contract exclusively?
    is this person assigning/wholesaling the contract to you for $10k?

    you can pay $500, $1000, .5%, 1% or whatever you want.

    $10k is kinda high for a $280k with $40k in equity.

    what’s your entry and whats your exit?

    #23290
    Avatar of ericw
    ericw
    Member

    I would “partner” up with him and possibly split everything 50/50 (upfront that is left over after trust set up, contingency fund, and so on, the monthly and the back end). That is AFTER a RB is found and footing the payments.

    If he doesn’t want a beneficial interest then only split the front end, though that is dumb on his behalf. Homes aren’t even a dime a thousand around here and can get all the houses I want at will and it is like that in a lot of areas around the country, not sure about yours. If he is willing to split it, work a deal and do it if not find another.

    #23291
    Avatar of ericw
    ericw
    Member

    Also, if you are getting it under contract for $320k and find a RB to bring 5% to the table that is $16,000. If you go his route he is getting the majority of the upfront and once you figure in the fees for setting up the transaction and contingency fund that leaves you with Nadda, big fat zero. I personally wouldn’t put myself in the position to receive nothing if possible, try to work something more beneficitial to both of you.

    #23292
    Avatar of areyes
    areyes
    Member

    dont be a motivated buyer

    #23293
    Avatar of lisafriedman
    lisafriedman
    Member

    Thanks for your replies.

    No RB – just found out about this an hour ago. No exit strategy. I am completing my first trust now with a regular tenant and have not had an RB yet as I am new with this. Ideally, I would like to hold the house long term so not really concerned with exit strategy yet. Just keep renting it to regular tenants or RBs.

    I met the person who wants the fee at the 3 day Bill Gatten event. He did not join the program, but knows enough about trusts to explain them. He has spoken with seller initially and explained the general concept of the land trust. Now he wants to pass on my name and I would do all the work and just pay him a fee. I would rather just pay one fee upfront than offer him a % interest in property as I plan on holding it for many years and would expect it to appreciate. I have the $$ to pay an upfront fee so I would rather just do that and that is all that he is asking for. I would just like to know what is a fair amount to pay. What would a standard range be?

    Entry point is undetermined at this point as I have not spoken with the seller yet. Need to arrange referral fee with this other person before getting sellers info.

    As I don’t have an RB yet, and since I would take a regular tenant with good credit if I can’t find an RB, then I would not be getting any money upfront from an RB and would pay the trust fees out of my pocket in order to assume sellers mortgage. Seller will be behind 3 payments as of November and would lose equity anyway if htey get foreclosed on so I am thinking of offering to just take over mortgage. So my upfront fees would be three months of mortgage payments ($6,500) plus trust fees plus vacancy til I can find a tenant plus referral fee. Still cheaper than coming up with 20% downpayment to buy a home as an investor.

    So, the question remains, what is generally a fair fee to pay? What would be a range that you would pay on your deals?

    Thank You,
    Lisa

    #23294
    Avatar of areyes
    areyes
    Member

    yes its cheaper than putting up your credit and 20% down as an conventional investor.

    think of creative financing as an art. bill taught us to acquire free properties to control without owning. even though you have great credit, 20% down payment and reserves, dont you think it would be more fun and challenging to see if you can do this without putting yourself at risk and money out of your own pocket?

    so he’s charging you $10k to educate a motivated/distressed seller about the land trust concept? we dont sell the land trust concept, its how we use it and the documentation. in terms of educating people, personally i do that for free to earn trust and rapport with the seller and in return i get a NEO with them.

    does this person own the success pack? if he does, thats fine. if he doesnt own the success pack, how can he explain this to the seller?

    so youre going to cure 3 months, plus add another 3 months for a contingency fund, plus pay the EHT setup, and the rest of the holding costs during vacancy while securing a tenant or RB?

    would it hurt your feelings if you passed this up? if so, you sound like a motivated buyer to get your first trust deal done.

    if it doesnt hurt your feelings, great rule #4, next!

    $500 as a referral fee upon close of escrow. do not pay him upfront for a name.

    #23295
    Avatar of lisafriedman
    lisafriedman
    Member

    He did not buy the sucess pack but he is pretty savvy and can explain it as well as I can. He built the initial rapport and trust with these people and feels he deserves something for that. I’ll try to negotiate with him. His feeling is that I can walk away from this deal making 70k in a few years so why should he only get 1%. Again, I’d rather pay him upfront and keep all the appreciation for myself. So it sounds like you think that 1% would be the max that I should offer? I’d like him to give me more referrals in the future and he met other people in the seminar that he can shop this to. I like the concept of picking up a house for little money down, not having the mortgage on my credit, etc. so I’d like to pick up the house if I could. I won’t overpay for the house so although I am a ‘motivated’ buyer, I am not a stupid buyer. I won’t do a deal that doesn’t make sense just to do a deal. However, being new at the trust game, I wanted to get some advice. $1,000 seems too low. I am pretty happy with 1% if you think that is a fair rate. Would you pay more than 1%?

    #23296
    Avatar of areyes
    areyes
    Member

    id give 1% or more if they pulled their weight like to help show the property, marketing, taking in phone calls, pretty much just like what a buyer’s agent would do for a commission. ask him why is this seller lead worth $10k to him?

    start off at 1%, then when he brings in more leads then bump it up as you build your relationship.

    get the seller’s contact info, numbers from the seller and lets see if this makes sense. again he will get paid at close of escrow upon securing an RB. so youre going to need some sort of agreement with him to protect both of your interest.

    #23297
    Avatar of lisafriedman
    lisafriedman
    Member

    Thanks.

    #23298
    Avatar of areyes
    areyes
    Member

    great question, good luck and have fun

    #23299
    Avatar of lisafriedman
    lisafriedman
    Member

    Just spoke with him and we agreed on 1%. I will be talking with the sellers on Friday. Thanks again for the advice and for saving me $7k!!

    #23300
    Avatar of dbhenderson
    dbhenderson
    Member

    @LisaFriedman wrote:

    Hello. Newbie here. Investor beneficiary in process of completing my first trust.

    There is someone who attened Bill’s seminar with me but did not join the program. He is offering me a lead for a home worth about $320k with a $280k mortgage. He is asking for a $10k referral fee which I think seems a little high. Should I base referral fee on amount of equity in the house or on purchase price? What is range of referral fees that you fine folks out there are paying? Do you work on a flat fee or percentage of equity/sale price and what would that range be? He is not interested in a beneficial interest but would like an upfront fee at time RB moves in.

    Thank you in advance for your responses.

    I offer 25% of the profits of the deal not including the RB closing costs or membership discount. This is more a mentor agreement than a referral fee. If I have to wait for the bumped equity and the appreciation then I feel they should to. If I get an RB that contributes 10% up front to get 100% of the appreciation, then I’d give 25% of the extra 5% up front. Also, 25% of the $300 monthly positive cash flow isn’t too bad for 36 months. Here’s an example of how your finder would make out with me:
    $20k bumped equity @ 25% = $5,000. $25,000 appreciation (this is an estimate but is about what we average after 50% split with RB on a $320k house) @ 25% = $6,250. $300 PCF @ 25% = $75. X 36 months = $2,700.
    That’s $13,950 over three years (no way would I agree to $10k up front).
    Besides, you can’t really put a value on what he’ll learn on how to build “A fortune in Free Real Estate”!

    What does your finder bring to the deal? My finder must make lots of calls (I furnish the leads), find the motivated sellers who are willing to stay on their loan for 36 months, get the answers to my five questions (so I can prepare the NEO and set the pick up/signing appointment in my office) and follow up and make sure the seller keeps the appointment with me at my office. When the NEO is signed then the finder must help me find the RB. This means helping me put out the yard signs and directional signs, take digital pictures of the property and email them to me so I can post the property on the Lease2OwnUtah web site. Because some cities pick up directional signs on some properties the directional’s have to be put out on Friday evening and picked up on Sunday. I expect my finder to help do that on the houses he’s in on. It’s not easy street and I’m not paying for just a referral.

    Anyway, that’s how I’d do it!

    #23301
    Avatar of lisafriedman
    lisafriedman
    Member

    Wow, you are really making them earn their fee! That is a totally different concept to what I had thought of.

    What would you pay to someone who just gave you a lead and didn’t want to do any of the other work?

    Within the last hour, I negotiated 1% with this person and am happy about that as I plan to hold it long term and would like to keep the appreciation. Like say that I keep rotating RBs so they can get the tax break, but don’t end up selling the house to them. If I own the house for 20 years then sell for 150k profit, why should this person who just gave me a name be entitled to 25% of that? What do you think would be a fair amount in that instance?

    I own 14 properties that I’ve purchased conventionally over the years and have just done my first trust (with seller holding mortgage, no RB). I have owned my oldest property for seven years and have never sold anything yet so it is a very real possibility that I could hold my properties long, long term. I am 38 and my husband is 42. We plan on having many mortgages paid off by the time we retire and living off the passive income from all the rentals. So I’d rather hold than flip. Obviously, I’d have to buy out the sellers and refinance mortgages at some point, but I am okay with that.

    #23302
    Avatar of dbhenderson
    dbhenderson
    Member

    With out offending you, it sounds to me too much like the “lease option mentality”.

    The thing I liked about NARS when I first saw it was it was WIN, WIN for everybody involved. Statistics tell us that only 14% of those doing lease options (and most other creative financing programs) ever end up owning the house. I specialize in Lease2Own. Using the NARS NEHT System I can achieve the “Dream” of home ownership for over 90% of my clients. In my opinion, I’d rather do a deal every 36 months that gives me positive cash flow (with no landlord problems, maintenance or vacancy), bumped equity paid every 36 months, up front RB closing costs paid every 36 months and 50% of the appreciation paid every 36 months with none of my money invested (if you’ve got money to put in your deals, why not buy the house for cash, with a discount (instant equity), and become the settlor beneficiary leveraging your money and having someone else paying and handling everything?), with no risk or liability, safety from preditory attorneys, creditors and bureaucraps, and do lots of deals helping people achieve their dreams, than speculate on only appreciation and handle all the problems of being a landlord. I guarantee by doing new 36 month deals every 36 months as opposed to holding properties given a faily long time I’ll have a lot more dollars in the profit side of the ledger.

    Like Bill says, “If you can do something easier, better, safer and cheaper than what I’m offering, then you definitively don’t need me or what it is I’m proposing to do for you!

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