Passive Investor Profit Sharing

[Shane Shaddox]

Hi everyone,

Im thinking about bringing on passive investors for future real estate deals, but I haven’t been able to find great resources that cover common real estate profit sharing, fee, and capital structure techniques for small time investors.

I imagine this can vary drastically from deal to deal, but I know other industries have standard fee structures. For example, hedge funds, venture capital funds, and private equity funds typically use the 2 and 20 structure. They charge investors 2% of assets under management for management fees each year and 20% of an investors return made on their investment over an agreed upon preferred return.

A 2 and 20 structure doesn’t seem like it would yield much more money for smaller investments. What are some typical profit sharing, fee, and capital structures for smaller investments (e.g. 8-12 unit multifamily properties) that you have heard of?

Greatly appreciate any insight or direction. Please feel free to ask clarifying questions if anything is unclear. Thank you!