Deal Structure For Partnership

[Greg Junge]

Hi BP,

I've been on here for a while and love the community and chime in from time to time. I do want to post more and be more active on here because my goal this year is to transition from Full time Realtor to full time investor, or at least shift my percentages to the investor side.

I have been a buy and hold investor in Phoenix since 2012 and it's been great, but I've only seen the upside of the market cycle, which I am well aware of.  My goal is to use my realtor skills and expertise to buy sfh's with partners and use their money for the down payment, so it's no money out of my pocket.  I'm looking at other markets where the cashflow and appreciation are both present, mainly markets in florida, but that's not why I am posting.

Has anyone put together a deal structure where my business partner puts in the down payment and is on the mortgage, and does nothing else, while I find the deal, find the property manager, manage the PM, set up the bank account, and I'd be on the mortgage too. 

For example, we buy a 120k house, my partner puts down 30k, we are both on the mortgage, and I would manage everything and my partner does nothing else.  My question is, what would be a fair split of ownership for this type of deal? I know it's not a black and white answer, but just wanted to hear opinions on what people think is fair, or if people have done this before, what split did you work out? 

Any thoughts are appreciated and if @Jay Hinrichs would chime in, since I know he has creatively put together deals in the past.

Thanks in advance BP!

[Daniel Dietz]

@Greg Junge, 

We just did a deal similar to this and are working on a couple more. 

The main difference is that we (myself and two existing investing partners who have a 3 way LLC, but no reason it could not be just one person) do the finding of deals, all paperwork, AND ongoing PM ourselves. We were already doing the PM on our existing 25 units, so had the structure set up that way.

The private investor in our case, and in the ones we are working on too are individuals that have cash to invest and either dont have the time to or the desire to find properties and do all the work involved with finding properties, financing, a PM, managing the PM, etc.... They tend to have these funds as part of the 'conservative part of their portfolio' too, so are happy to find a stable investment with less perceived risk than the securities markets. 

We have the experience and connections with service providers to run things efficiently and profitably. For example our vacancy rates are below 2% and we typically get about a 10% value add in the first year or so also. We also do a good job of finding quality off market deals as almost NOTHING come on the MLS for multifmaily in our area.

We split all cash flow 50-50 and all equity growth 50-50. This structure gives the investor a 10-14% return on equity and us the same amount. So lets say that the investor put down 100K on a 400K property. The investor might make 12.5Kper year and us 12.5K per year. If we were hiring our the PM, that would cost about 8% - 10% of revenue, which might be about 5K. I would *think* that should come out of *our* half of the split if we hired it out. 

Summary is this; they had cash for down payments, we had experience of how to find and run properties so it is a win-win situation. 

Dan Dietz