How to structure my first deal?

[Tyler Purcell]

Hello everyone,

I am a new investor about to do my first deal. My first deal will be a rehab, funded by my uncle, who lives out of state and will be mostly hands-off. He has experience in real estate investing, and will be looking at the numbers and obviously making sure it is a good investment. However, he is not local and will not be able to do any of the work, and will merely be an investor. This leaves the work and property hunting to myself and a friend/partner. The partner is like myself (handy and hard working) so he will be kicking in some sweat equity and also has connections with contractors and has a agent family member that will likely sell the property for us.

Now, my question to the BP community is "How do I structure this deal?". I could bring my uncle on as a hard money lender, but for my first deal I think we might rather split profits. What kind of split is typical? I know in business, 65/35 is typical. However, this being my first flip, 50/50 almost sounds reasonable. Will I own? Will he own? Will I write him in as a partner when I form my LLC? Please advise.

With my uncle's share out of the way, how do I split things up with my partner? So far, I have raised the funds, found the deal, etc. However, he will help with the work and selling of the properties, and is a valid resource when it comes to knowledge and connections. 50/50 again, or is that too generous?

Everybody's advise is appreciated, but please, let's keep this thread about the structure of the deal. The deal itself, my experience, and my favorite color are all irrelevant.

Thanks!

[Bryan Hancock]

Offer him a preferred return and a split thereafter. This structure is fair to both parties. He gets a fixed percentage return before you get anything and you guys split thereafter. Something like 8% followed by a split is a good idea. You can also do something like 8% followed by a 50/50 split up to 15% and 70/30 in your favor thereafter. This type of arrangement means you get to keep more money for adding more value.

I would suggest keeping the arrangement simple and doing either a JV between entities or a contract of some sort. An attorney should be able to help with this.