Splitting cash-flow and equity with a second investor

[Johnatan Roy]

I’m about to purchase a triplex with an investor. I’m wondering what the deal should be between the investor and me. I’ll be paying closing costs and down payment and the investor will be paying for renovations. We will be investing 50/50 but I’ll be managing and fixing the property. What % should my share be?

Thanks for your insight,

Joe

[Joe Villeneuve]

The person/people putting the money in always wants more than they're worth.  They have no concept of everything else that goes into the deal before (finding, analyzing, offering, negotiating, etc...on multiple properties even before the one they will be partnering is locked up), and after (closing, rehab, managing, etc...).

Here's how I do it:

1 - Have all partners, on their own, list all of the roles and responsibilities the partners will have to fill.  Make sure none (even the smallest) are left out.  Don't group them together in any way, such as assigning the roles/responsibilities to each partner...yet.  That comes down the road.

2 - Apply a percentage to each based on time and value to the deal.  Don't worry if they don't add up to 100% (the total almost always is greater than 100%).  This is just defining the relationship of importance between all of the roles/responsibilities.  Still no grouping.

3 - Once everyone has their own list made up, with percentages, add up the percentages...this number is usually over 100%.  Now divide 100 by this number, and you will get a percentage (decimal at this point).

4 - Multiply the numbers you assigned to each r/r by the percentage you calculated in step #3.

5 - Assign the r/r, with percentages calculated in step #4 to each partner.

6 - Add up the percentages in the individual partner groupings you calculated in step #5.

7 - ...and you have the percentage of the deal each partner will get.