Partnership Setup-Splitting of equity based on duties/investment?

Question

Hi all,

I had a question regarding partnerships and equity % in said partnerships. In this example Person A would simply be the money guy and a silent investor. Person B would be in charge of finding properties that make sense financially to buy & hold and make solid cash flow returns and appreciation. Person B will also contribute some money but for argument's sake, let's say Person A puts up 100% of the money. If developing a partnership, and Person A wants to just give money and not be involved, and Person B handles all the due diligence, the financial matters, etc. what would be a typical fair % of equity that Person B would receive for doing the above?

Also, for the above scenario, let's say there are two options within that scenario: 1) Person B also finds tenants and manages the properties.

2) Person B only finds the properties that makes sense, handles the finances, calls with property manager, etc but has a separate property manager to find tenants and manage.

Thanks for any feedback/insight on this topic!

Bret Weigel · Answer

At this point, it looks like my partner will put down more of the down payment/closing money for me finding the properties. Either 65/35 or 60/40. These will mainly be from the MLS for buy & hold. If I manage the properties as well, there will be an additional management fee paid to me (10-15% of rents). Equity will be 50/50.

If I get to the point to where I am marketing and finding deals and additional legwork other then searching, looking and vetting MLS properties, the % in structure will have to change.

No clue how it would work on flips...

Thomas S. · Answer

Straight partnership, one money , other managing - 50/50 equity partnership

Keith Baker · Answer

Hi Brett,  just curious to see if you have made any progress with your partnership scenarios?  I've been doing private lending but am considering partnering with another investor in an LLC to do flips and have similar questions/concerns.

Bret Weigel · Answer

Thanks, Kris. I appreciate it. I can see how that would work for a set amount of ROI to the investor; however, I wonder if there's some way to do it where we just assign the equity % to each other based on duties and responsibilities vs. financing and then splitting all proceeds based upon that percentage.

Kris Baldwin · Answer

Hi Brett,

I'm not sure how it works for others, but for me, I look for private investors that have extra money in money market accounts , typically making less than 1-2%. I then partner with them at an agreed upon rate, somewhere between 8-12% ROI, and then make the deal happen. Person B in your scenario is doing all of the work other than writing the check. Person A, writes a check and takes the risk. You can minimize the risk by producing a solid business plan and a case study for the particular property you are looking for. Also, spotlight the work that Person B will be doing, and let Person A understand that there is a ton of work that you will be performing on your end. You can use this when negotiating a rate that is fair to the both of you. Hope this helps!