How to split ownership and profits from an apartment acquisition

[Jeb Brilliant]

Hi All, 

I may have found the right apartment complex to buy but I have no idea how to structure the purchase, ownership, monthly cashflow and selling it. I will manage the entire purchase and the apartment itself (not as a PM, just overseeing it), my friend will be totally passive. 

I don't have the $500k downpayment but my friend does. I can bring 10%-20% of the downpayment but not nearly $500k. How can I structure this? I want to be as fair as possible but I do need to make this worth my while. 

I've heard some people say you only need a little skin in the game if you're managing everything (again not as a PM) and you can split some aspects 50/50. Others say you just take the percentage you contribute and 10% for managing it. 

What have you done and what do you recommend? 

Thanks in advance. 

[J Scott Hamilton]

I would recommend you putting in as much as you can, and your friend cover the rest. You can each have different amounts in your respective capital accounts and that is perfectly okay.  Then you might want to split the cash flow profit and tax benefits in proportion to how much each of you contributed.

Then when it comes time to sell the property, maybe split the net income either 50/50 or again in proportion to how much each contributed on the down payment.  That can also be spelled out in the partnership agreement.  Then in terms of the duties, make it explicit in the partnership agreement who does what, and specify who does anything that needs to get done that wasn't thought about and documented.

When it comes time to cash out, the amounts each of you have in your respective capital accounts is how much you get back (if the bookkeeping was done correctly).