HELP - Partnership Agreements

[Gabe Nazario]

Hi all, 

I am about to submit an offer for our first investment property (single family home in Tampa). I am going in on this deal w/ a very close family member. The family member has the capital but no time. I have the time and a little capital. So we plan to split the downpayment 80/20 or so. The family member won’t do anything else other than add the capital for the deal. I will be running the property and making sure everything gets up and running. 

What’s the best way to structure a partnership for this type of deal as we would like to partner again later in the year in a similar fashion. Just trying to understand what’s in it for my family member since they are adding most of the capital. The cashflow profits really won’t be appealing to them especially if we split it a certain way. 

Let me know! 

[Scott E.]

Sounds like this will be a long term rental, so I'll reply with that assumption.

If you are true partners on the deal, you should split up the cash flow 80/20 as there won't be much work to get it "up and running" and your partner will likely not get a decent cash on cash return if they put up 80% of the cash and take a smaller % of the cash flow.

How I would structure this if it's a long term rental, is not a partnership, but instead a loan. Just offer to borrow X amount from your family member with an interest only payment at a rate they are comfortable with. 5%? 8%? Whatever they want.

This way you retain 100% ownership of the property, the cashflow, the appreciation, and the tax benefits. And your family member gets a fixed passive return on their money.