Sweat Equity Compensation Between Partners

[Daniel Jackson]

Hello,

My sibling and I are going to acquire a small office building, which will be leased to tenants.

My sibling solely provides the capital for acquisition. Everything else with regards to the property (e.g., finding the property to acquire, closing, leases, property and tenant management, reversion, etc.) will be done by me. In short, my sibling is the bank, and I am everything else (the sweat).

This works out well, because I am still saddled with student loans at present and do not have capital to invest, whereas my sibling has capital to invest and needs to diversify their retirement portfolio’s income streams.

Income Before Taxes will not be disbursed, but retained to buy future properties. Has anybody ever done this, or know how somebody did this? My sibling and I are trying to determine what would be an equitable approach to compensate my “sweat equity” given the initial ownership structure of my sibling's 95% and my 5%.

Initial thoughts have been to transfer ownership units from my sibling to myself, or instead of changing the ownership mix, earmarking a larger percentage of the Income Before Taxes retained, which will give me more ownership in the next property acquisition.

Thank you for your time and help! Any guidance is greatly appreciated!