Is this a good partnership structure?

[Brian Kantor]

Hi, everyone! As I've gotten more and more experience in this world, friends and family have asked me how they can work with me. Many have money, but not the time or desire to do this on their own. As such, they've asked me if they can supply the capital, I do the work, and we share in the upside.

After pondering for a while on what a fair and compelling partnership agreement might look like, here's the outline that I've come up with and would love to hear everyone's thoughts and feedback.

• Number of properties: Partnership is only tied to one single property with the option to work on future properties together as separate entities.
• Legal entity:  This property and any possible future property held in their own individual LLCs.
• Initial investment: Partner provides 90% of the total estimated cost to purchase property + renovations needed for it to be rent-ready. I provide 10% of the capital so that I have some skin-in-the-game.
• Ownership:  The above investment, however, equates to their owning 80% of the property and me owning 20%. In other words, I am getting a 10% kicker for doing all the work.
• Incremental renovation costs:  To "keep me honest" any renovation costs prior to that first tenant that exceed a 20% buffer are split 50/50. In other words, if I estimate that I can buy a property for $70k that needs $30k in renovations, should renovation budget go over by more than $6k, my partner and I split those incremental costs 50/50.
• CapEx/Emergency fund: We agree to set aside 100% of excess rent revenues towards 1 year of expenses OR 100% of potential CapEx expenses for 30 years (whichever is higher). In other words, we don't pay ourselves until we have a nice cushion of cash set aside for major repairs and/or tenant issues.
• Cash-Flow: After expenses and CapEx/emergency, we split cash-flow 50/50
• Cash-out-refi:  If we both agree to do a cash-out refinance for the purpose of acquiring a new property, that new property maintains the 80/20 ownership split. Incremental costs that might be needed for that additional property paid in that same 90/10 ratio. New property held within its own LLC and essentially we start back at the top of this list.

Additional notes: When one member passes away, the surviving member gains full control of decision-making process on existing properties with regards to sell or hold. Heir of deceased member gains same ownership and cash-flow % of that partner.

Obviously, we'd have an attorney draft this up and also create an operating agreement for the LLC(s).

Yes, there would need to be details on reporting cadence, etc, but didnt get into that here.

How can this be made better? Any thoughts or questions?

Thanks!

-Brian