I Have No Idea How To Fairly Split This 50/50 Joint Venture

[Will Gaston]

All:

My good friend (and business partner) and I master leased a college student rental property with an option to buy about 3 years ago. We have 2 years before the expiration of the option. The current cash flow on the property is fantastic at about $2500/month. 

However, we're having some pretty significant management and CapEx issues that would be much, much easier to manage effectively if the property was owned and not leased. The master lease calls for the owner to spend on CapEx but he's not willing to do so. He knows we're going to buy it anyway so he's not interested in buying a new roof or painting the exterior. I'm not willing to call him on it because we have a great deal now. Also, he's probably willing to give a 5-10% discount for an immediate purchase. There are plenty of practical and financial benefits to purchasing it now and I'd like to do so.

So both my partner and I have signed the lease and are jointly responsible for it. We also used our business capital (about 15k) to put down on the property. So we are in this deal 50/50. The problem is that my business partner brings no value to the table on the deal. I found the deal, manage the property, lease it, deal with the all of the college student drama. I handle everything. I obviously should've done this on my own looking back on it. 

Even though I'd like to buy this property now I don't want to tie up my credit and or down payment money to split this deal 50/50. Because it would likely be in the LLC's name and a 50/50 partnership, my portfolio lender would require me to sign and tie up my credit is well. For what it's worth, I don't think he would buy this on his own if he had the choice to at the end of the option period.

Most importantly I don't want to damage the friendship that we have. What would be a fair way for me to make him whole? I would MUCH rather be too generous than not enough in this situation.

Some thoughts I have:

1) Offer him a lump cash sum if I can buy it on my own 

2) Allow him first right of refusal to buy it (and pay me a lump sum)

Anybody have any experience in splitting up a deal with a close friend or family member?

[Tyler Mullen]

You said you didn't want to tie up your credit... Having the mortgage in his name is bring something to the table, as is putting up some of the funds.  If something happens, god forbid, he's on the hook for the whole amount, that't not "nothing".

It sounds like the post acquisition workload is unbalanced, I like the suggestion from @Michael Lee re: have a frank discussion and just ask the question.  Doing more of the management is certainly worth something, I think taking a management fee is a great way to account for it and it also firmly formalizes your responsibility for it.

With a partner you don't want things to go unsaid, he sounds like a professional, I would talk to him and see what he says.  Maybe he'll balk at first and then just let it sit with him, then maybe he'll see after some time to consider.