Sorry if broad/poorly-worded, but how do investors who use other people's money make money?
I'm fairly new to CRE, so I'm not sure I'm equipped with the vocab/knowledge to even ask this question correctly. When an investor (or managing partner) raises money for the down payment for an investment property, how does he make money since he doesn't put anything in? Does he just charge a percentage fee from the selling price, or does he get a percentage of NOI? If so, what is the typical range of these fees?
[{"id": "cmr2tes", "text": "I think it varies by property type and size of deal...But broadly speaking most developers/managing partners will charge various types of fees to the project to help cover Overhead. Acquisition fee, Leasing Fees, Development fees, disposition fees, etc.\n\nThe other way to make money is by earning a promote. A few weeks back someone posted a very useful article from a real estate finance journal on that topic. I suggest you read that: http://www.reddit.com/r/CommercialRealEstate/comments/2leuw7/this_is_the_best_summary_of_a_promoted_interest/", "replies": [], "depth": 1}, {"id": "cmr6vvi", "text": "You should check out Manny Koshbin's book on how to build your portfolio through real estate investments. He covers residential as well as commercial RE. Lots of great knowledge to soak up in there!\n\n[Manny Khoshbin's Contrarian PlayBook: How to Build Your $100 Million Real Estate Portfolio From the Ground Up](http://www.amazon.com/Manny-Khoshbins-Contrarian-PlayBook-Portfolio/dp/0983139318)", "replies": [], "depth": 1}, {"id": "cmrqgp9", "text": "I borrow money from my partner at a set rate. Basically my partner is giving a personal loan to our partnership at a fairly high interest rate. We then come up with a fair percentage of split on the partnership itself. Let's say I find a CRE property and bring it to him. We decide to be 80/20 partners on it. He lends the money for the purchase and rehab. When it's leased up I go find financing for it at a much lower rate than his cash. I pay him back with the proceeds from this financing. If all goes well he is paid back in full and there is some cash flow from the property. NOI gets split 80/20 and someday I own 20% of the building. My equity is basically sweat equity.", "replies": [{"id": "cn5pbcl", "text": "Just put of curiosity, what rate does he charge the partnership? ", "replies": [{"id": "cn5ptye", "text": "8%. Pretty standard hard money rate for my area.", "replies": [{"id": "cn5x5j5", "text": "Thanks.  I've usually heard 8%..hears 10 once but that was back in 2009.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "hkwy23m", "text": "&gt;orrow money from my partner at a set rate. Basically my partner is \n\nbe my mentor plz", "replies": [], "depth": 2}], "depth": 1}]