Forming a Partnership

[Kyle Warmouth]

A little bit about my situation: I am new to REI but have capital to invest and have immersed myself in the education of finding good deals, executing deals, etc (primarily through BP!). I am looking to be slightly more passive though in my investment and have a good friend who has worked on some flips as a contractor for another investor. He would like to move past the contractor role and more into an investing/partnership role. We want this to be a long term partnership and both have similar plans for growth and expansion.

My question is, what are some typical ways one can structure a partnership deals, where one person is providing the capital, looking for the deals, executing the deals and then the other person is completely responsible for managing the rehab and repairs?

Should we just split evenly, 50-50 on the profits of our flip? Obviously, I have a bit more risk in that I am the one putting up the capital but he will be spending way more time at the property and with the rehab than me and will be compensated based on the profits of the flip. Should we be forming an official LLC or Partnership?

Really appreciate any insight into how one may structure a partnership like this.

Thanks!

[Eric Black]

Hi Kyle,

Partnerships can be a very tricky prospect, especially when it comes to partnering with friends or family. My advice would be to find a good, experienced attorney who knows both partnerships and real estate very well and invest some money getting their advice and having them set up the structure. Chances are there will be a lot of things they will bring up that neither of you have thought about that will be there to protect both of you in the future. If you choose to go it alone then my only piece of advice would be to discuss and outline in the partnership agreement every possible scenario, good and bad, that you both can think of and how every little issue will be handled. Verbal agreements and assumptions have been the demise of many partnerships.

Cheers!

Eric