Partnership Split % - Multifamily Apartments

[Lucas Miles]

Myself along with a partner have a small portfolio of multifamily properties under contract. This will be the first deal we have done together and are trying to establish a fair percentage split between us. The business plan is to basically BRRRR these properties, purchasing at a discount due to the properties are underperforming, we are obtaining a construction loan from a lender, improve NOI and refinance a 1-2 years down the road and then hold long term. Here are the details:

From an operational standpoint we are basically 50/50 and will both be actively involved in the business, we will be hiring 3rd party management. 

Down payment money invested are we 50/50, however seller is carrying a second mortgage of 20%, and we are obtaining a rehab loan so we will have little money invested. 

This is an off market deal that I found reaching out directly to the seller. 

My partner has a lot more experience turning around smaller (10-30 units) multifamily properties, this will be his largest. The largest project I have done is a 5 unit. My partner's net worth is also about 10X mine. So his experience, net worth, etc were the main reason we were able to get approved for bank financing. We are obtaining a recourse loan from a local portfolio lender. 

Main considerations are I found the deal, but my partner brings more experience and a better financial backing for lending. 

Looking for any guidance on how best to split our percentages in this situation. Thank you in advance! 

[Aaron W.]

@Lucas Miles Congrats on finding this deal. Sounds like a good one!

What else do you think you can bring to the table that your partner can't or doesn't want to do?  Perhaps, you will take on more of the asset management such as overseeing construction or something else. 

At the end of the day, the agreement needs to appear fair on both sides. It may not matter to your partner that he is brining in the experience and net worth, and may be happy with a 50/50 split. This is a discussion that needs to take place. Open dialogue within the partnership is essential. Don't be hesitant to have these conversations and they should happen early in the relationship.

Once you agree upon the partnership split, then make sure it is in writing and written up by an attorney. Everything should be done formally, no matter if it is your best friend or family. What you are endeavoring on is a business and not a hobby, so it should be treated as one.

Best of luck!