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Updated almost 7 years ago,
Partnership Structure - Capital Raising
Hello there,
I don't think this is a unique question at all but is one I have been pondering. I am looking for ways to buy bigger to gain the economies of scale that will come with it. One idea I have been contemplating is putting together an investment partnership and pitching it to friends and family. I am working on modeling that out and I realized I am not sure what the standard format is.
Here is what I am thinking. I will find the deal, manage the investment, pay costs associate with the deal prior to closing (with the expectation of reimbursement from the partnership upon closing), handle accounting, etc. For this I would expect a 50% ownership interest. I will also have decision making authority.
Passive investors would receive a preferred 8% return on their investment annually plus a proportion of the other 50% based on their proportion of investment relative to the total capital collected. For example, if we raise $200k and one investor puts in $50k, they would receive 12.5% ownership (=50k/200k x 50%).
I would expect to make distributions based on ownership % annually for cash generated in excess of a baseline bank account which would be the only time I would be getting any current cash out of this type of structure.
I am not sure if a 50/50 split would be enticing enough to investors and I don't want to bring a concept to friend and family that might feel like I am trying to slight them. I would also likely want to buy in as a limited partner in addition to being the managing partner. Would that present a different set of problems?
For a little reference, I am an investor that owns a few properties already so I have some experience. This would be a much larger leap though. I am sure there are a lot of holes in this plan. Please shoot them for me.