Seeking advice on How to structure an RE partnership??

Question

I am a remodeling contractor and have a long time friend/acquaintance with significant resources and capital. We are considering a partnership where he provides funding and I will manage the projects. Our focus will be long term buy and hold multi family units. We are trying to put together a business plan that works for the both of us. Looking for advice and recommendations on how to go about structuring such a relationship?

Basit Siddiqi · Answer

I think you may want to start of the arrangement in a more simple fashion.

Ask for a loan in which he will get a stated return 6% to 12%.

If you are both successful happy with this arrangement, upgrade to a partnership.
I think a partnership off the bat makes things complicated.

You will also likely make more money in a loan agreement if the project does well.

Tyson E Keslar · Answer

@Scott Mac thank you for your response!

Kyle Joseph · Answer

@Tyson E Keslar There are a lot of variables to consider in addition to the roles and responsibilities that you have outlined. Some big ones that you guys can talk about before getting lawyers/CPAs involved to see if you are in agreement are things like identifying key decision rights and determine who has those if there is a disagreement (leasing decisions, refinancing, sale, choosing a property manager, scope of capex and renovations, etc) and determining profit/distribution splits. An attorney will help you work through other issues and matters, as there will be several that you guys need to sort out.

Also, before you guys spend a lot of time and money working through a partnership to be used on several deals, it may be worth finding a deal to do together, keep it simple, and see how you guys like to work together.

Scott Mac · Answer

You might want to speak to a real estate tax pro about both of your unique situations tax wise, and the possibility of having a multi-member LLC set up for you.

If this seems like a scenario you would like to pursue, at that point you might want to speak with an attorney who sets up real estate multi-member LLC's for investors.

The LLC has an operating agreement, a written record of what both partners want to do with the business. Responsibilities and rewards.

This website has several of both as members you may wish to contact any of them or someone that you know locally. That is up to you.

Good Luck!

Clint Jusino · Answer

@Tyson E Keslar I have a friend who asked a similar question. This is the responses we have received. It's alot to think about. I hope this helps.

"There are many things to consider in such a situation, it is not black and white but a relationship has to begin with trust. You can say that in some situations a 50% / 50% will work in other it won't. This has to be evaluated case by case. Basically the other investors is acting as Realtor , property manager and manager overseeing the flip in this case. Considering general scenario 10% for property manager and 3% for realtor and manager say 5% or fixed fee the 1st investor cost is coming to 18% so adding 5-10% on basis of future deals and partnership I can think of 25% - 30 % would still be great deal for 2nd investor."

Tyson E Keslar · Answer

@Basit Siddiqithank you!

Tyson E Keslar · Answer

@Kyle Joseph thank you for responding!

Seeking advice on How to structure an RE partnership??

Most Popular Reply