Accelerating Growth thru Partnerships: Structure Feedback

[Alex Huang]

I'm curious to hear people's thoughts on an arrangement for some potential partnerships.

I have a number of personal friends who are independently wealthy and who have expressed interest in working together. They are looking for opportunities to generate cashflow post-retirement, etc. I've been thinking of creative ways to partner up as I think it's a great way to accelerate growth in my RE portfolio. I wanted some feedback on this structure:

1. Friend puts up all the capital to purchase a house (SFR or MFR)

2. I do the rest: find the properties, rehab, rent them out, etc

3. We BRRRR the properties (or hold them free & clear, depending on investor's preference), return the invested capital and split any excess in the refi 50/50. Profits moving forward are split 50/50 in perpetuity.

4. We would create separate LLCs with each person and hold the properties in the name of the LLC. Operating Agmts etc would also be fleshed out to ensure everyone is secured.

I know terms are all negotiable, but I'm looking for feedback on the 50/50 split and whether that seems reasonable / consistent with other deals you all have done?

[Corina Eufinger]

I think overall it looks good.  I would be ready to change the equity split.  Money partners usually want more equity up front because they feel (and arguably do) have more on the line.  You can structure it so you can buy equity over the years to get to equal partner.  You ask for 50/50 and see if they give it but I wouldn't go any lower 30/70 to start. 

Seperate LLCs for each person is a necessity.  You don't want your partnership with Jim Smith affecting your deals with Sally Jones.