Real Estate 101: How to Structure Partnerships as a New Investor

In a recent episode of the BiggerPockets Podcast, a listener wrote in with the following question:

“I’m looking to buy my first multifamily, but I’m going to have to partner with someone because I don’t have enough money to put down. How would you structure or propose a deal with a partner to make it mutually beneficial?”

Here’s how I answered.

How to Structure Partnerships

First of all, partnerships can really be whatever you want. I mean, there’s no rule—it doesn’t have to be this or that.

That said, it’s got to be beneficial for both people, both people have to agree to it. So, the best partnership is one both people are happy with.

Does that make sense?

Determine What You Need & What You Can Offer in Return

Now, I’ve typically structured my partnerships in that exact situation 50/50, where one person brings the down payment and the other person brings the deal and takes care of the situation.

If you’ve got no money, you obviously need to find someone who does. And so I would suggest you find the deal, you put it all together, you manage the difficulties (the paperwork and everything else that you can).

Basically, you want to make it as easy as possible for your investor. It’s very important that you get this deal done, so you can buy more and more deals down the road. And along the way, you build relationships.

So, you’re going to need to do a lot of the grunt work. Maybe that even means you’re going to manage the property.

What happens long-term? I would recommend this.

Determine How to Split Profits

What I’ve done is we split everything 50/50 down the road. Half of the cash flow goes to you; 50 percent goes to the partner.

When we do that in our business with my 50/50 partners, we typically don’t take money every month in profit. Otherwise, you know, in a bad month we’d have to pay in. We add it up over the course of the year, and then we just pay out at the end of the year whatever we made. (And we like to have at least a few thousand-dollar buffer that we leave in there every year—just in case things go bad.)

So, that’s how we do it. I like 50/50, because it’s hard to argue with that.

Could it be 70/30? Could it be 60/40? Of course it could be. It’s whatever you choose to do.

But honestly, if you’re just getting started in real estate and you’re trying to do something cool—to build a business and you’ve got no money—let me tell you this…

A 99/1 deal, where you get 1% and somebody else gets 99%, is still better than doing nothing, right? Because if you just can’t do anything on your own, the most important thing in the beginning is building your knowledge, experience, and confidence.

So again, when I talk about partnerships, a 50/50 can be great. But if you can’t find that, it might still be worth it for you to go do all the work for another established investor—just so you can get moving. Just so you can get some momentum going. Later on, you can restructure the profit distribution to earn a bigger share.

You’re never going to get rich off one property. You get wealthy off a portfolio. And to get a portfolio, you need to build knowledge, experience, and education as you go.

So why not start by proving your value as a partner?

The last point I’ll make is to be sure to talk with a lawyer about how to make this all legal. There are a lot of ways to do it. You could form an LLC together. You could form a joint venture (JV). There are a lot of different ways you could do this thing.

Talk with an attorney. Just sit down with them. It probably won’t cost you more than a couple hundred bucks.

Get on the phone with an attorney or get in person with you, your partner, and an attorney, and have them go through a lot of the “what you want to do in this case” and “what you want to do in that case.” That few hundred dollars you’ll spend is going to make for a lifetime of easier partnerships.

Questions? Comments?

Let’s talk below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.