Draw of an 8% Interest Rate?

I'm about to graduate college and the leasing shop I'm interning at offered me a $40k draw, an advance against future commissions for the first year.  

The contract states "If the remaining balance of the draw is not paid back, in full, within twelve (12) months of Agent's termination (voluntary or involuntary), then the loan will automatically begin to accrue interest at an annual compound interest rate of eight percent (8%)." 

I like the guy running the shop and he has a lot of integrity but I feel like he's being very stringy with charging an 8% interest rate. Should I push back and rewrite certain parts of the contract?

It's usually a commission only shop but they offered me a draw since I'm not from the area and they don't want me taking a second job to pay my bills. I feel like the draw should be, "if the agent terminates they owe $0".

I thought a draw is a draw, not a loan. I'm trying to figure out how to go about this, I want to tread lightly. Has anyone had a scenario like this before? 

Real Estate Modeling Course

  • Real-life RE Modeling Tests from actual Interviews
  • Various asset classes including multi-family, commercial and more
  • Huge discount - until more tests and cases added

Comments (18)

Apr 15, 2021 - 5:08pm

Not as familiar with this subset of CRE in the context of a career, but from an outside perspective, seems absolutely criminal to charge an 8% compounded interest rate to a newly minted grad without experience in the field. Any one that would put this in a contract seems to have a dearth of "integrity." I'd run, not walk. Just my 2¢. 

Apr 28, 2021 - 11:59am

This. Reputable firms like those mentioned above don't charge interest and aren't going to hassle you if for some reason you couldn't pay back your draw (never seen that happen though). Also $40k is a lowball draw, but there is something to be said for keeping your draw low. If I remember correctly, guys at my former firm (one of those mentioned above) had some latitude in deciding how much draw they wanted to take. 

Apr 15, 2021 - 5:42pm

8% for an unsecured personal loan to a young individual? Not that crazy. However, I don't know the industry well enough. Is it commercial leases? NNN? Does everyone run their own book of business or does the commission get split amongst the firm (assuming its more than just the one guy)? People do very well in the commercial leasing business with a pure commission structure but it depends on the team/firm. If I were you I would do homework on the amount of deal flow you will see in a year and figure our how much of that you would see. If its less than $40K probably don't work there.

Apr 15, 2021 - 5:50pm

Draws are loans... Mine never had any interest attached, but was a similar structure. Other poster is correct that shops generally don't go after people hard for the money if they fail out or get fired, but if they just used it as coasting money, then could want to go after them. Realistically, if you are poor enough to need a draw, then you likely don't have any other money to go after. It'd be like squeezing water out of a rock to try and pull $40k out of someone with no income or assets (and probably a mountain of student loan debt).

If you can get the interest removed, then it seems like a standard draw setup. 

Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
  • Director in RE - Comm
Apr 15, 2021 - 6:10pm

Oh please don't do it, unless you know you want to be in leasing for 3-5 years. I made the mistake of taking a repayable draw as my first gig out of college, because I wanted to be in CRE, but was clueless where to start (this was pre-WSO days). Was a smaller, "boutique" shop, and received $5k (wasn't there long) in draw before I realized brokerage wasn't for me. Repaid the thing, too, despite their "training" feeling like a bait & switch. It's a sales role, and you only get "trained" if you bring in business. 

Apr 15, 2021 - 6:52pm

This sounds like a very old school version of a draw (which is meant as a loan under its original terms), makes me wonder if the "8%" has been on the form for decades....

Personally, I don't think these are best roles for most straight out of UG. I think far better to do a salaried role at a brokerage even if it means the loss of "unlimited upside". 

So, I guess, I'd say you can probably do better. Under the framework here, you are getting a 100% commission + a personal loan. If you think of it that way, does the offer seem as attractive?

Apr 26, 2021 - 4:29pm

Having the follow up conversation tomorrow... should I edit some parts of the contract (like getting rid of the interest rate) and present it to him? Also it states in the contract if terminated/leave the firm there's a non-compete clause for two years. Is that standard?

Apr 27, 2021 - 10:36pm

Right!? I'm going to a boutique IS shop this summer and they were open with me about joining them full time if I do well over the summer, explained how they train new brokers, etc. No mention of interest rate on draws or non-competes. Places like these remind of Tobin and Co. type firms. They just use new hires who may not know any better,

Start Discussion

Total Avg Compensation

May 2021 Investment Banking

  • Director/MD (9) $911
  • Vice President (35) $364
  • Associates (195) $233
  • 2nd Year Analyst (110) $151
  • Intern/Summer Associate (96) $145
  • 3rd+ Year Analyst (26) $145
  • 1st Year Analyst (404) $131
  • Intern/Summer Analyst (330) $82