How should I go upon working with a new partner
New to Real Estate · Milwaukee, WI · Member since 2021 · 28 posts · 9 votes
Me and another person plan on going 50/50 in a wholesale business. The thing is I know I will put way more time and effort into the business and turmoil will eventually breakout possibly. Let's hope that doesn't happen but my question is how would I go upon partnering? I heard from a lot of people that JV is better than forming an LLC right away just to test the waters. But I'm wondering why it is better? Is a JV still treated as an entity? Can I open a business account through the JV? And how do taxes work with a JV? Can you not write specific things off? And if things don't go well are JVs easy to just terminate?
The first mistake you made is assuming that the partnership would be divided evenly (50/50) just because there are two of you. You really answered your own question, without realizing it. Here's what I do, and it has never failed me since I started doing it this way:
1 - List all of the responsibilities/roles that need to be filled (don't assign them to anyone...yet)...don't miss ANY, even the minor ones.
2 - Without any consideration as to who will be doing each R/R, assign a number from 1 to 10 to each where the numbers are based on the relative importance of each one compared to the others. This means you can have more than one with the same number. Actually, they all could have the same number, but not likely. This is NOT a percentage, just a comparison number.
3 - Now, assign each R/R to the person performing them.
4 - Add up the numbers for all of the R/R to one number...it will probably be well over 100, but it could be less...at this point the total doesn't matter.
...here's where the true percentage return is decided based on work/importance of each R/R done.
5 - Divide 100 by the number you got in Step #4. This is your R/R value factor.
6 - Now add up all the R/R numbers separately for each partner, and multiply that total by the number you got in Step $5.
Congratulations!!! You just assigned the correct percentage each partner gets based on the value/work each partner contributes to the partnership.
The first mistake you made is assuming that the partnership would be divided evenly (50/50) just because there are two of you. You really answered your own question, without realizing it. Here's what I do, and it has never failed me since I started doing it this way:
1 - List all of the responsibilities/roles that need to be filled (don't assign them to anyone...yet)...don't miss ANY, even the minor ones.
2 - Without any consideration as to who will be doing each R/R, assign a number from 1 to 10 to each where the numbers are based on the relative importance of each one compared to the others. This means you can have more than one with the same number. Actually, they all could have the same number, but not likely. This is NOT a percentage, just a comparison number.
3 - Now, assign each R/R to the person performing them.
4 - Add up the numbers for all of the R/R to one number...it will probably be well over 100, but it could be less...at this point the total doesn't matter.
...here's where the true percentage return is decided based on work/importance of each R/R done.
5 - Divide 100 by the number you got in Step #4. This is your R/R value factor.
6 - Now add up all the R/R numbers separately for each partner, and multiply that total by the number you got in Step $5.
Congratulations!!! You just assigned the correct percentage each partner gets based on the value/work each partner contributes to the partnership.
The first mistake you made is assuming that the partnership would be divided evenly (50/50) just because there are two of you. You really answered your own question, without realizing it. Here's what I do, and it has never failed me since I started doing it this way:
1 - List all of the responsibilities/roles that need to be filled (don't assign them to anyone...yet)...don't miss ANY, even the minor ones.
2 - Without any consideration as to who will be doing each R/R, assign a number from 1 to 10 to each where the numbers are based on the relative importance of each one compared to the others. This means you can have more than one with the same number. Actually, they all could have the same number, but not likely. This is NOT a percentage, just a comparison number.
3 - Now, assign each R/R to the person performing them.
4 - Add up the numbers for all of the R/R to one number...it will probably be well over 100, but it could be less...at this point the total doesn't matter.
...here's where the true percentage return is decided based on work/importance of each R/R done.
5 - Divide 100 by the number you got in Step #4. This is your R/R value factor.
6 - Now add up all the R/R numbers separately for each partner, and multiply that total by the number you got in Step $5.
Congratulations!!! You just assigned the correct percentage each partner gets based on the value/work each partner contributes to the partnership.
I like this approach @Joe. I assumed everyone should get the same partnership amount as well but realistically, each role is different and 1 person could be doing ALL of the heavy lifting.
I'm also going to advocate talking to an attorney to draw up an operating agreement for any LLC you create with another person. In that operating agreement it should be spelled out HOW you get out of that partnership and what happens if one of you dies (for example do the shares the person owns go to their heirs and now they have voting rights in the company). You can also outline the purpose of the LLC, the roles and responsibilities and the equity ownership, which as mentioned above doesn't have to be 50/50. This is going to end up being a cost to get it done, but it will help down the road when you need to make changes or dissolve the LLC for one reason or another. Spend the money early on to get those contingencies put into place.