The easiest, least stressful ways to set up partnerships?

[Steven C. Suarez]

Hey BPers, me and and a friend (or more) are looking to buy, rehab, and rent out condos and houses in the Arlington, Texas area. One way we've examined doing things is equal partnerships, everyone puts in and gets out the same amount. The obvious pitfalls here is that some people wouldn't put in equal time and effort yet expect an equal piece of the pie, causing much conflict. We were also thinking of running the projects ourselves yet adding passive investors to the deals which would keep infighting and head butting to a minimum. Also, is buy and hold with investors even feasible? Or is that more a flipping houses thing? In addition, we're looking at investing in Dallas, Fort Worth, Hurst, Euless, Bedford, Grapevine and Irving. Thanks for yalls great advice! Stevo in Hurst

[Linda Weygant]

I had this same issue with my partnership.  Remember, what works for us may not work for you, but here's how we did it.

3 partners, 2 properties (so far).  2 of the partners have a lot of time, 1 partner doesn't. All partners contributing equitable cash.

1st property was almost turnkey - took a little paint and spit n polish and it was up and running.

2nd property was a total rehab, then converted to rental.

The way we decided to do it is that on the first property, the partner who is managing that property gets a percentage of monthly rent as a management fee.  Lower than what we'd pay a property manager, but still something that is worth her time and effort to manage it.

We all put equitable money in, so there's no need to figure out who gets more from a monetary investment perspective.

For the partner who managed the rehab - that person received a payout of 10% of the difference in equity from purchase to refi, minus the cost of rehab.  So purchased for $150, appraised at end of rehab for $194 and it cost $25 to rehab.  So she got a $1900 payout.

You can write this stuff up any way you like, so long as it is adequately documented in your Operating Agreement.  That's the document that will keep you out of court in the event something goes weird.  Or it's the document the judge will use to untangle anything you get yourself into.

We've also written into ours about what happens if somebody wants out.  We have clauses for Right of First Refusal, Finding a new partner, how we value the properties and partnerships, etc.