Profit Sharing as an acquisition strategy?

Buying Strategies
1

Has anyone ever leveraged profit-sharing as a tool to get buyers to part with their land? I’m wondering if this strategy could work in land acquisition like it does in home acquisitions? I think Orchard.com uses this strategy… they offer a base price for the home then profit-share with the seller whatever they can get above that but lower the price on an agreed-upon schedule.

Does this idea have legs?

2

My husband is a land surveyor so we plan to subdivide the land acquired and resell.

3

No, not in this market. And what investor is going to back land?

4

Profit-sharing with the seller, not an investor… wouldn’t that appeal to someone trying to sell their land for maximum profit?

5

This is one of the 4 main strategies in purchasing,.

  1. Lowball offer. If not acceptable, go to double close
  2. Double close offers more (wholesale value) in return for waiting for the money until we sell. This is your strategy
  3. Seller finance. offers more than wholesale in return for seller carrying financing
  4. Sell through Realtor with seller getting paid a little more than wholesale and land buyer getting the rest after Realtor expenses.
6

Jana - I think your idea could work. I would recommend using the term “profit-split” over “profit-sharing”. The latter has implications in the employee benefits realm.

1 Like
7

Thank you! Do you have any thoughts about how such a deal should be structured with the seller?

8

You may want to structure the deal as a Loan With Equity Profit Participation.

The investor funds the deal in the form of a loan along with a reasonable interest rate and maybe collateral as well. Be sure to use a promissory note and document the deal as a loan; not a joint venture or partnership

Terms would include a due-on-sale clause at which time the accumulated interest gets paid along with the profit allocation. The investor reports interest income for tax purposes and possibly capital gain on the profit split.

Be sure to check with your real estate attorney and CPA.

Hope this helps.