When to Find a Real Estate Partner and How to Structure

[Ryan Enk]

Hey guys, I thought I'd post this to give you an idea of how I structure my partnerships, why to partner, and to get feedback from others who have structured partnerships on how they are setting up there partnerships.

I set a goal to buy 1000 apartments in the next year and took on a partner to do so. (62 down, 938 to go, 50 under contract, 300 under LOI)

There are two reasons to partner in my opinion:

1) When you don't have something someone else has: money, credit, time, skills, resources.

2) When the partnership will help you hit your goal faster and easier.

Number 2 is why I partnered with Preston for the 1000 Door project.  We structured it 50/50.

In single family homes, if I take on a partner for a flip, then I typically structure it in a 50/50 LLC. 50 is the money, and the other 50 is the sweat equity.

If it is a single family hold, then instead of doing an equity split, I just offer them 6% to 12% interest only on their money until I sell the property.

Apartments are a little more complex, but still not hard to accomplish.  I split apartments up between LP and GP.  Limited Parters are the passive income cash investor, and the GP are the ones doing the work and putting the deal together.  Typical equity percentages between LP and GP are 50 to 80% equity for the LP, and 50 to 20% for the GP, depending on the deal.  I also typically offer investors a 4 to 10% preferred return on the cash flow before those splits take place.

Then on the GP side there may be one or more partner, and here is how I split the equity based on the tasks performed:

1) Finding, Sourcing, Underwriting, Contract, Due Diligence Tasks- 5% of GP

2) Risk Capital- Earnest Money Deposit and Due Diligence- 5% of GP

3) Money Raiser- 40%

4) Balance Sheet Guarantor- 10%

5) Asset management- 40%

For those of you who have put together deals with partnerships, what are your structures?