Partnering on a Deal | No Money Down

[Severin Sadjina]

Hi!

A bit of a Backstory (optional)

After having gotten my first deal (a small rental) this summer I was a 100% hooked. So I started looking for new deals, and luckily the market here in Norway is quite slow at the moment, so let's go shop!

But I quickly realized that saving up to buy more rentals all by myself was a much slower process than I would have liked. So I started thinking about how to get more money for weeks, and after several (almost) sleepless nights I finally got it (with a little help from something Grant Cardone said on a BP podcast): I need money to invest in real estate, but I doesn't have to be my money! It doesn't have to be on my budget! And once I realized this, it took me about 3 days to find someone with enough cash that was willing to partner with me. I actually went from "damn, where do I get money to buy something small" to "damn, now where do I find the deals to put all that money into?". (Before you get too excited, we're talking larger condos as student rentals here, so definitely no big boy stuff. Yet.)

The actual Request/Question

We are currently having a lawyer draft up a contract to define the partnership (as private persons, no company structure yet), and it would be very helpful to me if you could look over the main points and give me feedback! So I know I'm not screwing myself over here.

The main deal structure is:

1. Partnering up to invest in buy and hold, condos as student rentals.*
2. Partner brings all the cash needed to acquire the property (down payment, fees, deed registration, ...). I bring no cash to the table. Otherwise he is mainly passive.
3. I find the deals, analyze them, and buy them. And, in the end, sell them.
4. I take care of property management, finding tenants, signing contracts with them, maintenance, repairs, etc.
5. We split everything 50/50, ownership, mortgage, expenses, net cash flow, amortization, capital gains, ...

Now there are three points specifically that cause me some headache. It would be awesome to get input on those:

1. The lawyer suggested that my partner's capital (used to acquire the property) grows with the consumer price index (CPI). For example, if we sell, he won't just get the initial money back, but it will be CPI-adjusted. Too me that sounds a bit weird seeing as the whole point of investing in RE is to make significant more than the CPI, and he will get plenty with the cashflow, amortization, and capital gains on top of his initial investment.
2. My partner has about 1/4 of his capital tied up in a savings account. He has received tax benefits from this over the years, which he would need to pay back if used on an investment property. He wants me to split that cost with him. I think that is his cost of business, and not my problem. Then again, we need that money if we go do something together. But it just seems weird to me.
3. The lawyer suggests that I am not liable to my partner's capital in case of a loss. For example, if we had to suffer a larger loss, we would split that loss (according to the 50/50 idea), but I would not participate in splitting his loss of initial capital (the money he put down). For me, that's great as it greatly reduces my risk (otherwise, worst case, I'd have to pay him back 50% of what he put in), for him, maybe not so much.

So, what do you guys think?

Spot any obvious red flags?

Looks good?

I greatly appreciate any input here.

Regards from the far North,

Severin