Help forming a partnership

[Ryan Miller]

I have been investing in real estate and managing the properties (15 units) on my own for years but I have reach a point where I would like to scale faster. A long time friend reached out to me about forming a partnership. He has a lot capital and is looking to invest. Our plan is to brrrr five properties and use them as mid and short term rentals. He has all the capital but no real estate experience or infrastructure. I have years of experience, all the contacts, systems in place, knowledge, etc. 

The partnership is basically me providing the day to day work and he would provide the funding. How do we structure the percentage of ownership of the business? Is there a better way to do this (he doesn't want to just provide a loan)? After we brrrr successfully would he recoup his initial investment and keep the percentage of the business?

Any help would be greatly appreciated!

[Jeff Nash]

A partnership (general or limited), multi-member/manager LLC, or even less formal joint venture are flexible in nature so you can allocate the sharing ratios (capital, profits and losses) any which way you agree upon and changes can be made based on facts and circumstances in any given year (ie - you make special allocations). I think your decision on what's reasonable and fair and how you decide to operate heavily depends on the 2 factors you noted - your time and effort and expertise and the capital at-risk to your potential partner. How would you go about assigning the value to what you offer which is more subjective compared to actual dollars committed (could be equity or debt or a combination to your partner)? I would suggest you formally execute an agreement (file with the Secretary of State, get an operating and/or partnership agreement, open separate bank accounts in the name of the entity, maintain minutes and document key decisions, etc) and work with an attorney and/or tax professional (CPA and/or EA). They will quiz you on your goals, objectives, time horizon, pros and cons of different ways to operate from a legal and tax perspective, etc so you can do what's best in your opinion and unique situations.