Question Regarding Structuring a Deal with a Partner

[May Goldberg]

Hi Everyone, I have a question regarding structuring a partnership with another investor if both partners are not bringing equal capital into the investment? Should the profit be split based on the percentage each person brought in? Or would it be fair for each partner to receive the money they each put in back and the profit after that split 50/50? This will be my third investment, my first two were with my father and we agreed whatever we put in, we'll each get back and then split the profit equally. Also, I'm a realtor so, I would most likely deduct my commission from the purchase price and of course not take any commission when selling. I'd appreciate any thoughts on this! TIA

[Josh Caldwell]

Hello @May Goldberg  

The answer is that you and your partner can take a split any way that you can agree upon.  in the case with your dad, a 50/50 split wasn't really a business decision but a personal decision. 

In many real estate partnerships, one person bring the majority of the cash and the other does the majority of the work to find the deal and bring it to closing.  This is called the elephant that the mouse form of partnership.  In general when you have this type of deal, they person with the cash controls the deal and dictates the terms.  You can do a 50/50 split or 80/20 or anything else that you and your partner agree to. I have done deals where I was the wallet and where I was the worker.  In my experience, I tend to keep my deals 50/50 even when the other person doesnt deserve it.  I do this because I realize that newer investors are fairly useless to me early on in their career, I also realize that they wont always be useless to me.  I find that helping people when they need you is the BEST way to get a stream of great deals. Loyalty goes a long way.  I know there are people who will disagree with me here but so be it.  

 If you are the money person, then you want to control the deal. make sure that you use your closing company and lawyer to make sure that your interests are taken care of. 

I hope that helps

Josh