Ownership/Compensation Structure & Sweat Equity Advice

[Daniel Jackson]

Hello!  I'm new to the community, and I was hoping to attain some advice.

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, which will be an all cash deal with no financing (I know that an investor can diversify into more properties by being open to leverage, but it's my sibling's decision). 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, and Income Before Taxes retained each month would also be determined by the ownership percentages. This would continue happening until we are both 50/50 owners, although we have no idea at what rate. I was thinking about determining an average hourly rate for a property manager in my area, but I'm not sure how good that would be.

Thank you for your time and help! Any guidance/advice would be greatly appreciated!