Structuring Buy-and-Hold Partnership

[Scott Simmons]

Would love some insight/thoughts on how to structure a partnership:

1. Making an offer on a cash-flowing (~$550/mo.) duplex.

2. Structured in an LLC -- my holding company will own 2/3, our silent investor will own 1/3.

3. Silent investor will contribute 20% down payment + closing costs (~$40K). My 2/3 interest will not contribute up-front cash.

4. My 2/3 interest found deal, and will be performing all property management, accounting, etc.

5. Purchase Price: ~$185K.

I'm struggling how to reconcile what happens if we sell the property 2-3 years later. How do we ensure our investor gets his money back? So, for example, if we sell the property for $200K, with a remaining mortgage of $130K, the remaining left over after the sale is only $70K. If my investor gets 1/3 of that, he only gets ~$25K back on a $40K investment, even though we made an overall.

How do we protect his investment? Any thoughts or suggestions would be much appreciated.

[Scott Simmons]

@Bill F., we made an offer on the property today. Listed at $194,900; we offered $175,000. Structured it just as you suggested. Thanks!