How to split partnership between active and passive investors?

[Tim Schroeder]

I own several very successful self-managed vacation rental properties in other states and am looking to invest in several more with partners (family/friends). I bring experience and knowledge in the local market, contacts (agent, cleaners, maintenance, lenders) and a proven track record. I intend to self-manage the properties. Since they are short-term vacation rentals the level of effort is much higher than an LTR. My partner will bring most of the money and does not want to manage the properties.

I’m looking for a way to split the deal that is fair to all.

Scenario A: I take a management fee off the top, and we split profit based on the investment that each made (let’s say it was 90% investor/10% manager). This is easy and obvious. The problem is the manager (me) isn’t making much off the deal and is really acting as a PM not an investor – yet is bringing the deal to the table, doing all the work and making it happen.

Scenario B: I take a management fee off the top, my partner puts up all the down payment, I put up nothing, we split ownership and profits 50/50, but I owe him my half of the down payment – either as a lien held until we sell, or I pay the “loan” back out of my profits over the course of a couple years.

Scenario C: I put up a lesser amount of the down payment - say 20% versus his 80%. We split ownership and profit 50/50. No management fee. Basically I’m getting half equity for less than half of the initial investment because of the substantial management effort.

At the end of the day the question is, is it reasonable to obtain a higher ownership & profit stake in a property because you brought the deal and did all the work?  Or is being paid for your effort in the form of a management fee a better fairer method of compensation?