How to structure partnership?

[Harris Vuadens]

Want to ask for advice. I am part of a group of 4 individuals who want to start flipping houses. I am in Finance and know how work with number. I also have funds to invest. Two of the other individuals are in the trades and willing to do some of the work and also use network for contractors. They may have some funds to invest as well. Last individual is a retiree who has money to invest but wants to be a silent partner. This will be all our first time doing a partnership to invest real estate. How should we structure the partnership so that it’s fair and equitable? 

[Kyle Spearin]

@Harris Vuadens work with a lawyer to draw this up and make sure to have an operating agreement stating everyone's roles.

[Zachary Cain Humphrey]

Quote from @Harris Vuadens:

Want to ask for advice. I am part of a group of 4 individuals who want to start flipping houses. I am in Finance and know how work with number. I also have funds to invest. Two of the other individuals are in the trades and willing to do some of the work and also use network for contractors. They may have some funds to invest as well. Last individual is a retiree who has money to invest but wants to be a silent partner. This will be all our first time doing a partnership to invest real estate. How should we structure the partnership so that it’s fair and equitable? 

 Meet with a real estate focused attorney who has done contracts like this before. Discuss everything. What happens if a partner dies? What happens if a partner wants out in 2 years? What happens if a partner is not doing their portion of the deal?

Dont go off of hand shakes and good faith. 

Have it all in writing via a signed contract by all parties and discussed in the presence of a lawyer to protect each of you and the group in general. 

[Stuart Udis]

@Harris Vuadens  Before you engage legal counsel, here are some more practical and operational thoughts that come to mind.  It sounds like there's a relationship that exists outside of your interest in pursuing this real estate investment endeavor and I am concerned the desire to collaborate with all parties mentioned is taking priority over whether the foursome can collaborate to everyone's benefit. I say this because I see a lot of overlap in skill and offerings based on what you shared. The question I would like to throw back at you is whether the removal of one or multiple members will diminish what can be accomplished and if so, to what extent?  My suspicions tell me removing one of the partners who has construction experience will not diminish the partnership's output and if so, can the partners contribution be replaced by a 3rd party vendor for less?  You should also take inventory of how likely you can deploy the capital you and the silent partner are able and willing to deploy. If you are not confident you can deploy all of the capital, you will have an inefficient capital stack. More generally, I see most partnerships struggle because there's a lack of compatibility amongst what can be contributed. This seems to have that appearance.

[Alecia Loveless]

@Harris Vuadens Make sure you have a solid exit strategy written into your partnership agreement.