Offering up a Partnership with a good client of mine - thoughts?

[Craig Garrow]

I have a good client of mine who shares a common interest in self storage facilities and is fairly flush with cash. I currently manage four rental properties for him, and I know he’s a fairly hands off investor, often going on crazy hiking or kayaking trips from weeks to a month or more on end. I’ve been thinking of approaching him with an idea for a partnership and starting to go after some of the Mom and Pop self storage businesses with him. My thought initially would be to put in about 15-20% of the cash to purchase, plus do all of the Management and “boots on the ground” stuff and get a 25% stake in the business. Does that seem out of line? I know taking 100% of the “headaches” off his plate is certainly worth something to him. Any tips or suggestions?

[Michael Wagner]

This is a good question but one that's very hard to answer in generalities.  It will need to be deal specific.  If its a larger facility with an employee and you are just managing the asset, I think you might be in the ballpark.  But if you are going to be expected to do the move ins/outs and be the actual boots on the ground, you should be sure to get paid for those services too...

Question that comes to my mind is if you have 15-20% to put down, why not use the bank as your "partner" and keep 100% off the profits for yourself.  You'll get all the cash flow and all the equity that accrues over time and you'll be doing no more work than you would by forming a partnership with your client....? Just something to think about.

Generally speaking when I look at a deal that I am going to partner on, I allocate (very roughly) 33% of the deal to finding the deal, 33% to funding the deal and 33% to "working the deal"....And I adjust those up or down depending on the circumstances.  Sorry I can't give more specific advice but I think you will be best served by going out and finding the deal.  If its good enough, you;ll find the money....either with this guy or with someone else.  Pitching "hypotheticals" is usually a waste of time in my experience.  Its easy for folks to say yes to a hypothetical deal and then not commit when presented with a real deal.

Just my two cents:)