# Entrepreneur of the Week Dror Dorinbaum # Post 6 “The Magic Formula” So we got to the final episode, it felt like a diary to me…

# Entrepreneur of the Week Dror Dorinbaum # Post 6 “The Magic Formula” So we got to the final episode, it felt like a diary to me…

# Initiated week Dror Dorinbaum # Post 6

The "magic formula"
So we got to the final chapter, it felt to me like such an abbreviated travel diary. And I hope you were able to take something with you from all of the above and even if not, it's fine. I read a lot of posts that talk about almost everything, and I thought it would be right to share mindset as well and not just theoretical content to bring added value. Most of you have poured compliments and I cherish for that thank you, overall I shared a bit of my way, and some stories that influenced it.
For this post I actually prepared content that interested me very much in the past and I did not find much sharing on the subject, maybe because of the sensitivity threshold, or simply because there is no right and wrong, but there is best practice, which many others "may" succeed for us. And I'm talking about a partnership or its common jargon in the real estate world: joint venture and JV for short.
By nature, the idea of ​​working in a team always sounds good because there are a lot of benefits in teamwork that everyone is familiar with so I thought of checking test cases and analyzing them in a way that I would understand how to do it bad and how to do it well. To my surprise I discovered that the vast majority of real estate transactions in the JV outline are done in the worst possible way and therefore most have failed.
The basic idea in the JV outline is to make a deal through at least one additional partner who brings something to the table thanks to which the deal will be a more profitable point. simple! Right? So how is it that so many people are doing it wrong?
To understand what works less and what more, you need to define what each real estate transaction consists of, and it is made up of a total of 4 components. (Sometimes 3).
1. The transaction (locating the transaction itself, the property and the contact person)
2. The project manager (the one who manages the entire purchase / improvement / construction / rental / administration and administration process with all parties, and the work with all suppliers and partners throughout the life of the project)
3. The money (there is nothing to expand - cash)
4. Financing (ability to raise long / short-term bank / non-bank financing)

And now for the starting assumptions:
-If there is no deal itself, there is no profit or loss.
-If there is no one to run the show, the deal will remain in Excel.
-If there is no cash, even 99% financing will not help. And 100% non-existent bank / non-bank financing).
- If there is no financing, the return on capital (ROI) has sometimes dropped significantly to the point of impossibility, but it is still possible to make transactions without financing using only cash, and make a profit, so this is the only component without which a successful transaction can still take place.
So far it sounds pretty logical, and now let's take some scenarios that on the face of it sound like should work and will never work as is:
- Two partners with insane knowledge in real estate project management, without liquid cash or raising 100% financing.
- A partner with cash, and a partner who brings the deal of the century! But they both do not know how to manage a project.
-Partner with cash, and partner with fundraising ability, without the ability to analyze or locate a good deal and manage it.
-Partner with cash and project management ability, and partner who brings the deal. But both do not have the ability to raise funds.
When opened this way, it is quite clear how it can work of course, but more importantly it is quite clear that without one component out of four, either the deal will not be executed, or it will be unprofitable, or it will fail in operation. And therefore according to their level of equal importance they are basically equal in their value.
There is no transaction similar to the other, and each is characterized by completely different risk / chance levels even if the two transactions are two houses adjacent to the same street. But to start working on a partnership outline in a deal you need an anchor model on which we will place the four components in a way that will work for everyone. And it must work for everyone. There is no good way out of the JV outline that does not work for everyone. Everyone has to make a profit, everyone has to bear the level of risk / chance according to their level of investment.
Sounds complicated, but it is not, if you sit this model on the four components equally at first. Each component in the transaction is equal to 25%. (Raising an eyebrow while 3… 2… 1…), yes what you heard, each component is equivalent to 25% of the total transaction, and if so, then of course so is the percentage of final profit in the project.
Clarification before proceeding: a good deal can be put on the model, the model can not be put on a bad deal.
And if a partner chooses one or more slots he must prove that he is capable of meeting it with honors.
Deal = 25%
Management = 25%
Financing = 25%
Cash = 25%
A theoretical example of a comparison between the JV outline and the acquisition of a classic rental:
Scenario A (Classic Rental Purchase):
Single buyer in cash
A home purchased for $ 160,000 can theoretically generate rental income of $ 1500, if purchased in cash will yield about 7% return after deducting current management expenses before tax, for the approved buyer.
Scenario B: (Purchase in outline JV)
Two buyers in the JV outline, a cash partner, and a managing partner, who brought the deal and financing.
The same house was purchased 25% cash by a cash partner and funded 75% through non-bank financing for 30 years by a managing partner. Out of the $ 1500 rent will be left say $ 500 after mortgage and ongoing management expenses (including everything), which sucks but wait, the cash partner only put in $ 40K which is 25% of the deal price, so if the cash partner withdraws $ 400 he will actually get 12% ROI . !! In addition $ 100 can attract a managing partner as a dividend. The actual return is lower than what the cash partner pulled but he gets cash on cash high.
At the end of two years in the sale of the house, the loan is covered, the equity of the cash partner returns to it, received a 12% return for two years, and after the sale what is left of the profit the partners divide according to the initial investment percentage. , The financing, managed the project from start to finish (purchase, improvement, management, improvement, sale), will receive 75% of the final profit, and the cash partner will receive 25% of the profit + return during the rental period.
Reservations and basic assumptions:
1. Unexpected risks and expenses in the property also exist in an ordinary transaction regardless of the outline.
2. Unexpected impairments can be minimized through smart buying in the right area and below the market price to produce a hedging margin.
3. A managing partner does not make a profit in the immediate term, but neither does he invest equity.
4. The cash partner receives, a high ROI that translates into a return, and a babysitter for an asset that is of interest.
5. The project has a beginning and an end (required) but can be duplicated several times.
6. If there were additional expenses during the life of the project, the cash partner pays and increases the investment / profit percentage accordingly.
7. Do not share the management slot between two partners.
8. The model works great on a good deal, a deal will not become good if you sew the model on it.
It's a lot to digest, and where it does not work, it should not happen. (It usually happens if the transaction does not have either cash flow or equity, one of which must be).
The basis of the model in my eyes rests on strong principles that properly serve all parties, and the parties benefit if they have supplied the goods in their box.

So here, I have revealed my magic formula for a partnership outline, and — with a hand on heart, hope many will adopt, because it is better to know experienced and older than me. Also serves as a crazy growth engine and is very suitable for particularly difficult market conditions. If applied correctly it just works great.
As of today, Adv. Itai Aharon and I are friends and partners in a consulting and acquiring company. Active entrepreneurs in the amazing Dallas Texas, who so far do us no favors. Surrounded by good people, and a team of crazy people running with us like a patrol on a mission. I was happy to share from my short travel diary, it was just as weird and fun.
Anyone wishing to consult / share / speak is welcome to call me at 052-3148148, or with me - 052-5396160 (who can also advise on legal matters, JV agreements, contractor agreements, contracts and other vegetables).
Feel free to join our WhatsApp group (Quiet), where we share deals we locate in Dallas Texas exclusively for team members (rentals, flips and JVs):
https://chat.whatsapp.com/J6PlNjLKJlO9X3nKrogzJn
Anyone who wants to visit our site and learn a little more about us and the work is always welcome www.dna-investors.com
Our YouTube channel: (under construction)
https://www.youtube.com/channel/UCNssPuOn9-bZko3tGFUqcag
On Facebook I am less active on the professional level, more appreciative of personal acquaintance. But we have a business page under construction:
https://bit.ly/3b8f7CN
Feel free to like or do what you usually do there

Tanks for your stay.
And do not weep for what will not weep over you. (A sentence I stole from my father). see ya

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