#65: Arguments for Cost-Plus

https://buildingoptimal.com/episodes/06-ed-earl-secrets-happy-clients/ (Ed Earl) and https://buildingoptimal.com/episodes/11-paul-sanneman-getting-business-architects/ (Paul Sanneman), both previous guests, share the reasons why they like cost-plus contracts. As a fixed-price builder myself, I wanted to get the perspective from the other side of the aisle. If you want to learn more about Paul and Ed's work, visit https://residentialcontractorservicesgroup.com/ (https://residentialcontractorservicesgroup.com). Enjoy the episode!    “The wise man knows exactly what value should be put upon everything.” — Seneca       Over my 15 years to date of structuring real estate development deals, I’ve screwed up many a deal. I’ve left money on the table. I’ve shouldered too much risk. But luckily, on close to 100 projects I’ve sponsored, I’ve only ever lost money one one. The rest have performed well, and a good many surprisingly well (listen to my story in https://buildingoptimal.com/captivate-podcast/57-interviewing-show-host-jared-gossett/ (Episode 57)). What has been the single biggest improvement I’ve made in how I structure my deals? I’ve started thinking of the deal components as separate “Value Buckets.” As a result, I have a much easier job identifying an equitable deal for everyone and easily selling it to my investors.    Value Buckets in a Nutshell To use value buckets, think of deal structuring as an accountant would. Each deal is a new company in a sense, and that company will have assets, liabilities, and equity that each of the parties to the deal should value at some notion of fair market value. This sounds basic, like a foregone conclusion, but many people miss this point. And when they start thinking of projects through Value Buckets, what seemed like a reasonable deal may no longer be.    Most Common Value Buckets    Developer The developer finds, organizes, and sponsors the deal. He arranges all capital and ove