Anything wrong with this partnership agreement?

[Laura Chevalier]

I am going in on a 3-unit house with my investing partner, Mike, and we are trying to solidify an agreement for equity given what each of us is putting into the investment and the fact that we plan to split monthly expenses and cashflow 50/50. Do you see anything wrong with our approach? Or have any thoughts/suggestions?

Context:

Initial investment: 80% Me | 20% Mike 

Monthly expenses: 50% Me | 50% Mike

Monthly cashflow: 50% Me | 50% Mike

Mike found the property, scheduled a tour, coordinated with agents and lenders, arranged the inspection, and will be the Property Manager for at least the first few years. He is also the more knowledgable and more networked real estate investor between us. This is his second investment property.

I am providing the majority of the funds and have been in communication with all of our contacts, and plan to take on minimal property management responsibilities from a distance, mainly for the learning experience. I've also been leading the charge on the Operating Agreement for our eventual LLC. This is my first investment property.

Proposed agreement:

• (1) Start at equity split 75% Me | 25% Mike 
  • Gives Mike an extra 5% equity from the start for his experience and the initial arrangements he made with agents and inspector
• (2) Stay at 75/25 split until 75% equity gives me at least the 80% initial amount I put in 
  • e.g. Equity split stays at 75/25 for 5 years, if (75% of the equity after 5 years) = (80% of the starting equity)
• (3) After we reach the point where I get out what I put in (2), all gains in equity will be split evenly between the two of us
  • e.g. if total equity is $100,000 after (2), and a month later it's $101,000, the increase in equity was $1,000, so Mike's total equity and my total equity each increase by $500

This approach makes sense to us both, but having minimal experience in comparison to many of you on BiggerPockets, we thought we'd better sanity check ourselves here. Feedback appreciated!