When is it fair to split 50/50?

[Mariko Foster]

Hi all,

I recently joined Bigger Pockets and am so excited by all its resources and the opportunity to connect with others who are interested in and working in real estate. 

I've read several posts in the Bigger Pockets forums about how it is fair to split profits 50/50 between partners where one partner provides capital (i.e., funds the purchase) and the other partner provides sweat equity (i.e., finds the deal, executes the deal). I think though that there is a natural reaction (particularly among people who have not gone through the work of buying a property themselves) that this set up is in fact not fair to the partner providing capital. 

So, my question is where is the line that makes this a fair or not fair deal? I realize that the response is case-by-case so here is a sample scenario:

- Partner One puts up $200K for 25% downpayment (purchase price is $800K) plus $25K for repairs and furnishing for STR

- Partner Two finds the deal, closes the deal, works with contractors, designer and management company to prepare property for STR

- Partners use management company at 20% rental fee to manage STR

- Partners split profit after mortgage, taxes and expenses (including management company fee)

- If partners decide to sell property, Partner Two will do work to sell property and partners will split profits

I think the main argument that the above is not fair is that Partner Two's work tapers out after a few months and the management company is really doing the work. Considering that argument, would whether or not a 50/50 split is fair change if:

1. Partner Two paid the $25K for repairs and furnishing--putting some monetary skin in the game

2. The deal were smaller (e.g., $20K down on $100K purchase price)--suggesting that a 50/50 split is more fair where Partner One's monetary input is smaller

If 50/50 is an unfair split in the sample scenario, then what would be a fair split?

I appreciate any thoughts you all may have!