Structuring an Equity Partnership

[Matt Cutler]

Hey BP,

I'm looking for some input on how to best structure an active/silent equity partnership. One party would bring 100% of the cash while the other would take care of all the property management, maintenance, and rehab. I understand there are a million ways to structure these deals depending on what each individual is bringing to the table but I'm hoping to better understand one key point regarding the down payment and potential up front capex for a rehab. 

Hypothetically, if the partnership was a 50/50 split, would the party bringing the cash typically earmark those funds so the principal investment is safe? This would mean that all equity/profits are split 50/50 assuming the initial investment is paid back to the silent partner aside from the 50/50 split of the remaining equity left in the deal once the property is sold/refinanced. Or would a 50/50 split mean all equity/profits are split down the middle.

My preference would be to earmark the initial investment, especially if the strategy is to sell the property in the short term. 

I know there is a lot of ways to structure these partnerships but any feedback on best practices is appreciated.

Thank you!

Matt

[Seth Williams]

Hey Matt; I’m also from boston and recently structured a similar deal, ultimately it depends on what each party really wants out of the investment, I can send you the deal I brokered if you’d like hit me up direct and we can chat or meet for coffee