Multi-investor Projects

[Peter Schaub]

Hi BP,

I have a question about forming an LLC that has multiple capital contributors with the aim to flip houses. From what I've seen, a fairly common partnership is one operator and one capital partner. In other words one partner provides the capital, as a passive investor, and another partner handles the actual process of flipping a house.

For the sake of simplicity lets say a partnership is negotiated to be 50/50 between the operations and the financials. Now say instead of one operations and one financial partner, we have multiple finical investors.

Example: Bob flips houses, but has no money. 

Bob uses 20k from sally, 30k from Joe, and 50k from Eric to come up with 100k to fund a project. Say the whole project gets a 20% return, so the Net profit is 20k. Would the following distribution be fair  or  competitive in the market (I know this depends on the people, but I'd like to poll public opinion)

Bob- 10k at 50% for doing all the operations (buying, rennovating, selling)

sally - 2k at 20% capital contribution (20% of 50%)

Joe - 3k at 15% capital contribution (30% of 50%)

Eric - 5k at 25% capital contribution (50% of 50%)