Partnership Equity Stake Question

[Joseph Belgrad]

Hello Everyone,

This is in St. Kitts. 

My current landlord is a general contractor and built the apartment complex I live in. It's a nice complex with maintenance performed expediently. He's a great landlord and well liked by myself and the other tenants.

I've been in real estate for a few years and have managed several multifamily full-building renovations and have decided that full-time construction management is not how I want to spend my time. 

I approached my landlord and told him that I was interested in building some student housing and asked if he and his partner could manage the construction and furnishing of an apartment complex and then manage the property after it was finished. My fiancée and I would be financing everything and create the overall vision and direction of the project. He said he had just the piece of land in mind as he had previously planned a project with another investor several years ago who got sick and was no longer able to do the project. 

We used his attorney to acquire the land, and he's also working with the city to acquire the government owned plot next to it for me. He sent a crew out to clean the land and prep it for construction, and we've had an architect come out, and we have some preliminary drawings. So far, he hasn't charged me for any of the work he's done. I've just paid for the land, legal fees, and land cleaning. I've brought up compensation a couple times, and he's told me that he's more interested in the long-term relationship than getting paid right now. We do plan to draw up a full contract once we have the completed site and architectural plans so he'll be able to do a cost breakdown of the construction. 

My fiancée and I hold weekly meetings with him and his partner to stay on track with all the preparations. Originally, my fiancé and I had planned to pay him a salary to manage the construction and then pay him a percentage of income to manage the property. However, given the amount of involvement he's had in making this project come forth, our long-term relationship plans, and that I wouldn't be doing this project without his and his partner's involvement, I'm beginning to think that an equity stake in the rental profits might be more appropriate. 

My preliminary thoughts would be to do a 60/40 split on the rental profits and sale, if it comes to that, where he and his partner would put in the sweat equity of managing the project and rentals while my fiancée and I maintain ownership and supply the financing. While giving 40% profits would be quite a bit more than paying him to do the project and managing, I feel it's more representative of what he's contributing and ensures he has a vested interest in the property and its success. What are your thoughts?