Bringing in a small stake partner who wants to live in a unit

[Chris F.]

Three partners. One is interested in putting up 5% of the deal (equity required) and is willing to pay the "rent" on the unit she would live in.

• In theory she would be entitled to 5% of the cash flow, but how does it work if she's also paying for that unit? 
• The money she is paying on that unit would accrue in equity on an annual basis. How do I calculate how that pie chart adapts as she pays into it?
• Does it make sense that she is entitled to receive 5% of the profits, but because she is a smaller stake partner that she also has to pay the market rate for that specific unit?
• Do all partners split costs per their equity stake or does the property pay for expenses before cash comes/goes to partners. I assume an LLC business account would hold all of these records.

[Chris F.]

Originally posted by @Account Closed:

It sounds like a recipe for a disaster. How will you deal with raising the partner's rent who lives in one unit and the partner fights you. What legal and emotional problems will you have to deal with to evict your partner.

There are many legal issues you need to abide by to form a partnership. You need an attorney. You can't just take people's money, invest it and wing it as you go along. There are laws you have to abide by.

She is not paying for the unit. She is renting it exactly the same as any other tenant would. If she rented the apartment, you put the money into a bank account specific for that property. At the end of the year, after paying all the expenses she would be entitled to 5% of the profit. If you really run the books the right way she would probably be entitled to 5% of the depreciation, if any. She would only get 5% of the property's appreciation when you sell the property.

Do you really need 5% that bad!!!

No I don’t at all  this person is family and would allow me to use the unit (it’s a solid location and unit) whenever they are gone.