What is a fair partnetship profit split?

[Greg Larson]

Hi BP,

I'm new to structuring partnerships. If I'm hunting the off-market deal, negotiating it and locking it up, and my partner is bringing in the down payment and (possibly) rehab costs, what is a fair equity/cash flow split?

[Joe Villeneuve]

Sit down and list ALL of the items that must be paid for, both after your buy the property and before, leading up the deal...such as, market research, offers on properties you didn't get, etc...  Your list should be at least 20 items.

Now, place a number from 1 to 10, 10 being the most important (or the most work), for each item based on their relative importance to eachother.  Note, you can have more than 1 with the same number, and not all numbers (1 to 10) need be used,...but they can't all be the same.

Add up the numbers, and they shouldn't add up to 100...they could, but they don't have to and if you did it correctly, they most likely won't.  Divide 100 by this number.  This is what I refer to as your Factor of Importance (FOI).

Now, and only now, not before you assign number to each item, assign each item to each partner.  Then, add up these numbers (FOI) and you get what each partner gets for a percentage.  Simple, accurate, and since I came up with this method, I've NEVER had a complaint...because it's logical.