At Right Place Capital Partners, we usually structure our investments into our ground partners’ deals as profit shares. Few private lenders structure their deals this way because they cannot easily “finance” the paper or don’t like to take on the added risk. So, the only option with these traditional hard money lenders is points and interest deals–or in some cases, almost unbelievably, points, interest and a percentage of the profits!
We like profit shares and so do our partners. Here’s why:
- The interests of the capital partner putting up the cash (Right Place) and the ground partner performing the rehab (you) are aligned. Everyone is incentivized to get the deal done quickly, on budget with the right finishes and accurate valuations. Profit motives are completely aligned.
- The capital partner makes money when the rehabber does–when the sale to the retail buyer occurs. There are no points payable upfront, no interest payments during the duration of the loan and no principal reduction payments. Everything is settled up on the backend at the retail close.
- Growing businesses have cash constraints. Our ground partners like the flexibility that not having to fund points upfront, and monthly interest and principal reduction payments creates for them. It is a less stressful way to do business, and flipping is already stressful enough!
- Since our interests are aligned and we have the same incentive to maximize the profit at the retail sale, this deal structure creates synergy with our consultative lending strategy of finding ways to add value to our ground partners’ businesses. Right Place mission is to be a consultative capital provider and investor, and this deal structure facilitates our mission.
We like to understand our partners businesses almost as well as they do in order to foster “deeper, stronger” relationships, greater collaboration to do more business together and a greater opportunity to create wealth. Profit shares, by aligning interest closely, facilitate deeper and stronger relationships.
If you are a leader in your market, have great deal flow and are looking to work with a reliable and professional capital partner who can fund your growing residential rehab business, reach out to us! Then you decide if Right Place is right for you.