Money partners

[Duane White]

Hi BPers,

I asked a few of my coworkers if they would consider partnering with me on the purchase of another rental. I have a couple people who are interested and would consider putting down payment money in. My question is, what would be the best way to structure the partnership? I suppose it depends on how much they want to be involved, whether its just a setting up a promissory note and they get a return on their down payment money or if they want to go in on everything 50/50. I would like to show these potential investors an example of what each of these scenarios would look like on paper. Do you know of a way I could do this or could you point me in a direction to gather this information? Thank you BPers, I appreciate your time and expertise.

Thank you, Duane

[Joe Villeneuve]

I do it a number of different ways.  I'm usually working it with two other partners (or those two could be one).  I do the management, which includes all the heavy lifting from finding and analyzing the deals, to managing the partnership/business and all that entails.  The other two partners are the cash and credit partners.

Now my structure is based on my investment strategy, but it's fair for all partners, and I have had no problems finding partners to fill in when needed.  I break it down to the Cash partner getting 15%, the credit partner getting 50% and management gets the remaining 35%.  Ok, let the complaining begin about the splits.  Before anyone blows a gasket, here is why it's set up this way...and why it all makes perfect sense:

1 - Cash partner is in the best position.  They only get 15%, but since all of my deals involve refinancing out all of the cash within a max of 6 months, the cash partner is only at risk for 6 months.  Better than that, with their cash all back intact, they are ready to move into the next deal ASAP.  So you see, they are in the best position since that 15% is actually much higher due to the number of times they are using it (never spending it), per year (after year).

2 - The Credit Partner gets 50%, mainly because they are limited to how many times they can "tap that well".  Only so many loans.  (we go into a different Credit partner, so it doesn't stop us).  The nice thing about the Credit partner, is after they have exhausted the number of loans they can get, they can sell of part of % to someone else as a Buy-in partner, and now they are a cash partner.

3 - We just do all the work.

Like I said, this isn't the best arrangement for all investors, but it works great for both my local partners and my out of state partners, because of the market I'm in.