How to Fairly Split Profits in Our Real Estate Partnership (w/ our parents)?

[Chloe Do]

Hi all!

We're diving into our real estate partnership and could use your insights. A few months back, we acquired a property, gave it a makeover, and it's now rented. The next big move on our agenda? Constructing an ADU (Accessory Dwelling Unit) to enhance cash flow and equity.

Partners:

• - Parents: They've contributed 50% of the cash needed. Since they won't be involved in any tasks like financing, deal-finding, or remodeling, we proposed a fixed-rate lending arrangement.  They insisted on being limited partners rather than becoming our lenders.
• - Us: Contributing the other 50% of cash, we're in charge of everything else including the lead on financing, finding the right deal, overseeing the remodeling, and managing the permit process. Additionally, we'll handle the ADU construction, working closely with a General Contractor, and take charge of the rental process. Management fees will be paid separately (we charge 4% for managing it).

Our Experience: remodeling 3 properties, and prior involvement in ADU constructions in the past. Our experience includes a previous flipping project where we gifted all profits to our parents. I think it's fair that we ask for a fair share of the profit this time since we already gifted them all the profits in the previous deal.

Exit Strategy for our Partnership:

We aim to buy out our parents in 7-10 years to acquire 100% equity.

How would you suggest structuring the profit split?  I want to be fair to everybody and keep it as clear as possible. Thank you