Percentage split question partnership

[Maximilian Glodde]

Hello Fellow Members,

I am very new to real estate investing and currently have 2 units, which I acquired myself and manage since they’re nearby. I am now considering investing with a good friend of mine and would like some advice regarding what an appropriate percentage equity split would be based on the following.

Context:

1. My friend is a real estate agent, has reliable (and demonstrated) connections for contractors, property managers, and contacts for hard money lenders.

2. I work a full time W2 job and have the means to purchase (with financing) the property in question.

3. We want to build a long term business relationship and ultimately start our own LLC that does real estate investing.

The “deal”:

- Purchase an off market property at ~$280K and invest ~$70K with ARV of ~$500K.

- Rehab and sell within 90 days of purchase.

- Comps in the area support the ARV.

Considerations so far:

1. He gets buyer agent commission on $280K - 2% = $5.6K

2. He gets seller agent commission on $500K - 2% = $10K

*I figure 1 and 2 would happen anyway - i.e. if it wasn’t for him I and the seller would be spending that money so might as well be him. Then again without me, deal wouldn’t necessarily happen for him.

3. I am taking all financial risk - mortgage, hard money lender, personal cash. Also carrying associated costs during rehab.

Questions I have:

1. What would be a reasonable amount of profit share for him? Aside from the money he will make from agents commissions,  I thought 5-10% - this would net him $5-$15K depending on how well it goes.

2. Obviously we have a lot of trust in each other,  but I need a lawyer or will a simple 1-page signed document with the terms above suffice (obviously somewhat more refined).

3. I assume that he would have to disclose that he has some kind of personal stake in the property when the property is listed for sale after renovation?!

Thanks so much in advance for your advice!

Max