Partnership Structure

[Josh McCullough]

I've been around the MHP business for about 5 years now.  I do not own a park, but I own quite a few mobile homes in parks, and I'm fully capable of operating a medium size(50-100+) lot park.

I have a couple of guys who are interested in a JV. These guys have cash, but do not know anything about parks. I'd be the operations partner. How would something like this be structured as far as ROI? Would they get a higher % than me?

In another scenario....lets say that I do have cash, and the three of us go in equal, but I still do all of the operations.  How would this be structured?

[Steve L.]

There are a million ways to do it.

My preference being in your situation is something like this: 

• Any money invested earns a "preferred return."  Any additional cash flow is split based on ownership basis.   So let's say, it is a 500,000 investment and you guys agree to a 40% (partner A) for you, 30% (partner B + C) for each money partner and an 8% preferred return.  

Let's say the investment makes 5,000/month in profit after all expenses and each 30% partner invested 250,000.

$3,333.33/month is preferred return and is split between Partner B + C.  $1,666.67 is left over.  Partner A would get 40% or $666.67.  Partner B + C would each get $500 in addition to their preferred return payment.    Now let's say in 3 years you refinance $500,000 with a bank at 5%.  Partner B+C split those proceeds and now have $0 invested.  The bank gets their payment $2,083.33 and the remaining $2,916.67 is split along the ownership percentage.  

You can also negotiate a monthly fee or reimbursement for activities you do.  

If you invested your own cash, this same scenario would also work out.  

The things that are very hard to outsource in the real estate world are:

• Finding Opportunities
• Raising Money

Management, property knowledge and construction are all very important but eventually they can and should be outsourced if you want to continue to grow and spend your time efficiently.