Investor · Louisville, KY · Member since 2017 · 102 posts · 80 votes
In a nut shell, I have a property under contract. I can do this deal by myself, however, I am willing to partner with a friend who is interested in learning the ropes of REI. He cannot invest himself because of his dti (student loans). I understand the cons of bringing him in on this deal, but there are some solid pros as to why I'm open to it.
Question: what is the easiest way to structure this deal? Because I have the deal, financing options, and the know how, I think I want more than just 50/50.
What do y’all think is fair? 40/60, 30/70, 25/75? All duties will be split, however because he lives 1.5 hours away, I may Be more active with tenants/fixing issues that arise..
@Brandon Hall suggestions? Do you work with people who only have a house hack/ 1 rental property? If so I need your assistance for this years taxes!!
@Justine Scheuher
I don't see how your partner deserves more than 10%..
For me the asset management, project management for rehab deserves 25-30% of the split. In your case it depends on who is responsible for whatever and how much time dedicated
Grading of deal. Good to excellent based on return, built in equity, scarcity of property etc.. I would say 0-20% can be dedicated to that party.
The remaining 50-75% goes to funding partners. And this depends on who arrange financing if any. Higher % if the funding partners arrange the financing with lender..
Every deal is different but hope this helps somewhat
Good luck and keep us posted
If you're putting up the money and doing the majority of the work then you most certainly should get more than 50/50!
If I were you, I would write down all the monetary outlays and the potential work that will be involved in acquiring/rehabbing (if needed)/managing the property and realistically how much time and energy each partner is willing and able to put into the project, and then sit down and have a discussion about how even or lop-sided this deal is for each party. From there, I think you will have a pretty good idea of the percentage of work you and him will be doing on a consistent basis and it will make the discussion on how to split the deal a lot easier, and will reduce the chances of disagreement.
@Justine Scheuher
I don't see how your partner deserves more than 10%..
For me the asset management, project management for rehab deserves 25-30% of the split. In your case it depends on who is responsible for whatever and how much time dedicated
Grading of deal. Good to excellent based on return, built in equity, scarcity of property etc.. I would say 0-20% can be dedicated to that party.
The remaining 50-75% goes to funding partners. And this depends on who arrange financing if any. Higher % if the funding partners arrange the financing with lender..
Every deal is different but hope this helps somewhat
Good luck and keep us posted
@Justine Scheuher I'm with everyone else in that your partner should receive a pretty low stake, or just pay your partner for services rather than give away equity.
When you form a partnership, as an LLC, you can differentiate between capital interests and profits interests. It could be that you and your partner are putting in equal amounts of money, and therefore your capital interests are equal. But maybe you own 90% of the profits interest and your partner only owns 10% because you're going to be managing the deal and the profits will largely be based on your know-how.
When you sell, you'll split the proceeds per your capital interests, or 50/50 in this case. But during all the years you held the property, you received a 90% of the profits.
@Brandon Hall@Brian Pawl@Hai Loc Thanks again for the input, after looking at it and discussing it, we decided that I could/should do it alone. My friend is happy to be apart of it by watching, learning, and supporting me as a friend. :)
@Brandon Hall@Brian Pawl@Hai Loc Thanks again for the input, after looking at it and discussing it, we decided that I could/should do it alone. My friend is happy to be apart of it by watching, learning, and supporting me as a friend. :)
@Justine Scheuher for my partnership we equally invest but the split is 65/35 since I take care of everything. It’s also much easier that way, I have had active partners on flip projects which I know would be different than the rental situation but everyone having different inputs makes things almost impossible.
@Brian Pawl@Hai Loc@Sam P. Hey Guys, it's me again--you all had great input on partnerships and I'm wondering what your insights are on this one.
Update-the SFH in question last time is doing great (I ended up turning it into an Airbnb which is cashflowing 2.5x more than a regular LTR), I did that deal solo (thanks to your alls input).
Recently, I sold my primary home and bought a 4-unit which I am currently house-hacking and learning how to manage 3 tentants.
New thing/partnership in question: A friend and his buddy approached me about getting into investing, the conversation over the past few months turned into them wanting to partner. We had our first offical meeting to see what our goals were, what we had to invest, how we wanted to invest. Turns out that we all feel comfortable putting in 10K (so have 30K to start with)...we want to BRRRR so we will still need private money (which I might act as a private lender to). But anyways.. we would be invested "equally" BUT I feel as though I have more of the knowlegdge (they had no idea about any of the methods to invest) and I have read all the BP books/have the most experience landlording... I don't think they value the educational side of it becuase of their comments of "how we can figure it how"/"that part isn't hard."
Meeting left with good action steps..one of them being thinking about how to sturcture this. Any thoughts?
@Brian Pawl@Hai Loc@Sam P. Hey Guys, it's me again--you all had great input on partnerships and I'm wondering what your insights are on this one.
Update-the SFH in question last time is doing great (I ended up turning it into an Airbnb which is cashflowing 2.5x more than a regular LTR), I did that deal solo (thanks to your alls input).
Recently, I sold my primary home and bought a 4-unit which I am currently house-hacking and learning how to manage 3 tentants.
New thing/partnership in question: A friend and his buddy approached me about getting into investing, the conversation over the past few months turned into them wanting to partner. We had our first offical meeting to see what our goals were, what we had to invest, how we wanted to invest. Turns out that we all feel comfortable putting in 10K (so have 30K to start with)...we want to BRRRR so we will still need private money (which I might act as a private lender to). But anyways.. we would be invested "equally" BUT I feel as though I have more of the knowlegdge (they had no idea about any of the methods to invest) and I have read all the BP books/have the most experience landlording... I don't think they value the educational side of it becuase of their comments of "how we can figure it how"/"that part isn't hard."
Meeting left with good action steps..one of them being thinking about how to sturcture this. Any thoughts?
Justine
Great job so far
You have a lot of skin in the game and more risk. As an investor you want to maximize your returns which is usually putting down enough skin to generate a solid rate of return. Putting that much in upwards of 60-70% which includes the loan will diminish the return substantially especially if your interest rate is sub 7-8%. With that much equity you mine as well seek a deal at a lower amount where you control your own destiny and have to report to nobody. Seems like you are doing your investors/friends a favor more than anything. Unless you are trying to plant a seed and down the road make them investor a whole lot more of the pie then this deal.
Maybe there are variables that I don't know but if you do decide to go ahead you can try
25% goes to project manager which would be you and 75% to the investors.. It will be an easy split since 3 partners are contributing equal amounts. So the easy math would be you get 50% profit overall and your partners get 25% each.. and you collect interest of the loan on top..