How do you structure "partnerships"

[Seana Yates]

Hi All,

New investor here, but I'm a commercial property manager and house hacker so not entirely green. My question is, how do you guys structure partnerships? For example, if I take the DSCR loan myself and use a HELOC for the down payment, the property is in my name, but I have friends and associates who might want to invest, say $5k or $10k. Or a friend has electrician experience or helps paint, how would someone be involved?

I am also skilled in painting, woodworking, restoring, installing fixtures, ect, so I'd be doing a lot of sweat equity myself. I'm just not sure how to quantify those things fairly. I'd also be managing the tenants and leases myself.

Any suggestions or examples of what you did in the past that could be applied to this?

Thanks!

[David M.]

@Seana Yates While people structure partnerships anyway that they find acceptable, here are some concepts to consider:

Your "sweat equity" is great because it saves you in expenses.  The IRS just doesn't let you charge for your labour.  But,you should be getting more back in the helping to value your property.  But, if others work on your property, you should just be compensating them with payment for a job done.  

Here's the main reason why:  equity partners have an actual stake in the profitability of the venture.  Many people have wanted to partner with me, but they only want to share in the profits.  When I ask what happens if we lose money (which does happen unfortunately), they start backing off and giving me reasons why they need to be paid out anyway.  

For any investor,  your assets are at risk.  So, if somebody wants to invest with you but can't share in the losses, then they aren't really investors.

Once you start "pooling" funds, my understanding is it falls under SEC rules and regulations.  If you actually had a true partnership where everybody was involved in some shape or form, then its okay to proceed.

Hope that helps.  Happy to chat.  Good luck.