Who's being the jerk in this financial situation?

In My Humble Opinion
1

Note: this story is true in its essentials, but the details have been changed because I felt like it.

I have a cousin, “Sandra,” who is a woman of many talents. In addition to riding about the countryside with her hot strawberry blonde sidekick, righting wrongs and singing songs, she flips houses: that is, she purchases distressed properties, rehabs them, and resells them. One day last year she came to me and a few of her other cousins and said, “All right, guys, here’s the deal. There’s this house in midtown I’ve got my eye one. It’s in bad shape but the neighborhood is good; I can make a nice profit once I fix it up. Thing is, my cash is tied up right now, and time’s a factor if I want to buy it. If y’all each invest X thousand dollars, I can give you a 20% return in about 12 months.”

I trust both Sandra’s intentions and her judgment, so I ponied up the X thousand smackeroos; so did the other two persons she solicited. And she was as good as her word – better than her word, in fact. Three months sooner than promised, she had the house fixed up and sold, and we all got the promised 20% profit. She put quite a bit of her own money into the investment too–about half the total–she supervised the workmen, did the carpentry and painting herself, and so on. My only contribution to the rehab was bringing her a pizza one day when she was updating me on our progress; the same is true of her other investors.

Good deal, right? I certainly thought so. But not everyone agrees. You see, one of the other investors, “Jerry,” chanced to get a look at her books, and so discovered that Sandra had gotten more than twice her investment back, not just 20% more. Jerry’s upset by this. He feels that, since Sandra made back so much money, she should have spread it around to the rest of us, since we’re all family. He’s given her some grief about this and is trying to persuade the of us to join him in the complaint.

I think Jerry’s complaint is bullshit. But it’s possible I’m a chump. Sandra and I are good buddies, and she’s given me plenty of help when I was in a bad spot without ever asking for anything in return. I’d have been willing to just lend her the cash she needed without charging interest; the profit was just gravy.

Incidentally, Sandra and I are the only two investors who live in Memphis; the others are all out of towners. That is why I’m so certain she is the only of us who put in any sweat equity.

So that’s the story. Is Jerry being an asshole who needs to be slapped, or is Skald being a chump who needs a wake-up call?

2

IANAL, but just from reading what you wrote, Sandra delivered what she promised on your investment. Was there any contract signed where it would be no more than 20% return, or at least a 20% return? You said she stated she could give you a 20% return within 12 months and that’s what you got.

She needed your help in getting the property, she did most of the work, so I say Jerry is being a jerk.

3

If he agreed on the 20% return, and that’s what he got, then he is being a jerk for wanting more than he originally agreed to.

4

Jerry got his promised 20% and is being a whiny jerk. If he wanted to make a different deal, the time to do that was before he put in his money.

5

From a business perspective, I agree with you – you agreed to a 20% return and Sandra delivered. That’s a pretty good investment, even if Sandra profited by more than this.

From a family perspective, don’t go into business or invest money with family. At least, that’s how I feel. I’m not sure if the hassle is worth the profit.

6

Sandra is in the right. Jerry is a jerk. End of story.

7

Jerry got exactly what he was promised. He’s not entitled to anything more.

8

  1. Was anything written down?

  2. Was the 20% guaranteed - if the flip had lost money, would she still have given you your investent + 20% profit?

  3. Did she specifically say 20%, or did she say something like “about 20%, depending on how much I can sell it for?”

To me #2 is the most important one - were you expected to share the risk? If so, then I think you should share in the reward proportionally as well. If however, she said you’ll get 20% regardless of the outcome, then you have nothing to complain about.

If you were sharing the risk - then I think not letting you share in the reward is a bit shady. If that’s what you agreed to, then you can’t do much about it, but it would leave a bad taste in my mouth. Certainly if she did a significant portion of the work herself, she deserves more, but ISTM the best way for her to deal with that is by paying herself a salary (generous if she wants) as a contractor, then treat the rest of the proceeds as profit to be divided among the investors.

9

That is so Jerry! Goddamn it Jerry!

Jerry was promised 20%, Jerry got 20%, Jerry should not have been sniffing around Sandra’s books.

Make Jerry repeat “Ignorance is bliss” one hundred times.

10

You seem to be implying that he is not entitled to a punch in the throat. Is that what you meant? Because I was hoping to punch him in the throat.

Admittedly I’m always looking to punch people in the throat. I should probably do something about that: either discuss it in therapy or become a black-garbed night-roaming vigilante. Unfortunately the latter is kind of out of my wheelhouse. I could become a black-garbed night-roaming thief but then somebody would end up punching ME in the throat. Fricking Aquaman.

11

She was looking for a loan, not an investor. The dude was promised his money back plus 20%, which she delivered. End of story.

Would he have been okay if she had lost money and cut his payback to reflect the loss? I think not. Because it was a loan, not an investment! He’d want what he agreed to; repayment, plus interest, on time. Which is what he got.

He should keep his nose out of her books and her business!

12

First time I’ve ever agreed with you.

13

Simple as this.

14

Yep. She did what she said she did. He’s a pissy whiner. I’d be thrilled with a 20% return on an investment. Now, if I’d been next to Sandra with paintbrush in hand, I’d have expected more, but that’s a different story.

15

I actually offered to help with the carpentry, but she said “Thanks, but I refuse to be around you and power tools, buddy. I want to live.”

16

Nah, punching someone, even family, in the throat could be considered anti-social and get you talked about in public…

However, I would allow you upgrade from smacking him with a trout to belting him with a mackerel: https://www.youtube.com/watch?v=IhJQp-q1Y1s

17

Just to be clear, Sandra promised a 20% return on the loan, right? As in "you give me $1000 and in three months I will give you $1200’.

If so, proceed with the throat punching. And let me know the next time Sandra needs an investor.

Regards,
Shodan

PS - pie!

18

I would very likely react as Skald did, but since he asked for a technical answer, I think this post sums it up. Whiner Jerry has a point only to the extent some of these details are in his favor.

19

These are the key questions. OP’s phrasing is “I can give you 20% return in about 12 months”. That is extremely vague, especially if nothing was written down.

I think there are two basic ways this type of deal could have been structured:

  1. Fixed-interest short-term loan. In this case 20% over 12 months. Once you get repaid the loan is satisfied and Jerry is a jerk deserving of whatever punishment you deem appropriate.

  2. Equity stake in the flip. You purchased Z% of the home with your stake (Jerry did the same). You are entitled to Z% of the sale price minus expenses, including reasonable expenses for Sandra’s time. This type of thing would require quite a bit more bookkeeping to sort out and settle, and is not something you’d want to go in on with a family member on verbal contract alone.

20

Wait. I know that you are already a black-robed night-roaming vigilante.* That’s one of the many things I admire about you. So who are you trying to fool here? And Aquaman ain’t got nuthin’ on you.

Now, as to the situation with Jerry: He’s an idiot. Not only should he be hit with a mackerel but I think the flying monkeys should be deployed to remind him how to behave when giving the opportunity to make $200 in less than 12 months FOR DOING NOTHING. Ungrateful jerk. Future money-making opportunities should include me and **Shodan **and NOT Jerry. Let him make his money the old-fashioned way: he can work for it.

*Yeah, I know I promised I wouldn’t say anything, but, well, you keep refusing to add Atlas Apricot Hard Cider to the beverage list and I had to get your attention somehow.