Equity Partner Splits

[Ryan Wilson]

I've never had an equity partner in all the deals I've done. I've only used my own money, private money and bank financing to fund my own deals. However, this has limited me to doing a fixed number of deals per year as I have not sought additional private money outside of a few people I know.

I have a very high net worth individual that wants to become an equity partner. She came along at the right time as I am motivated to build my business and add additional multi-family and other commercial assets to my portfolio.

If we partner together, we would be buying assets to hold long-term together as we share that common goal. Most of these projects will be value add and, at least in the beginning, I will be handling or overseeing everything (marketing, acquisition, rehab, property management, etc...). She will just be providing the capital as she lives 4 hours outside of my market.

I want to be very fair and I want to keep it simple. My thought is that a 50/50 equity partnership would be the best way to go but I have zero experience here. Additionally, I see these syndication deals where the syndicator/sponsor charges a 1-3 percent acquisition fee, a 1-2 percent management fee, a 1-3 percent disposition fee and then a 25-60 percent profit split after the investors make a preferred return. When I see those arrangements, I wonder if I should be charging some type of management fee (like 10% of rents or something along those lines) to compensate me for managing all the work that is required on a value add project.

Advice??? What is fair? What is standard practice? What is a standard equity split in this situation? Should I even bring up some type of management fee for handling the projects from A to Z?

Please let me know your thoughts. Any advice or experience is appreciated. Thank you so much.

Ryan Wilson