Partnership split help

[Steven Catudal]

Hi all,

I am looking to partner with a friend of mine to purchase some rental properties. I will be funding the deals and he will be finding the  properties, diligencing, and then managing the properties. What does the partnership split usually look like in these situations? 

Thanks!

[Kevin Sobilo]

@Steven Catudal, In my opinion 100% you and 0% partner.

What do you do as time goes on and things evolve. Maybe the partner is less able to do some of the leg work or their priorities change or maybe they move out of state!

In my opinion it would be cleaner to split partnership based on monetary contribution and then remunerate each active party for their work if the active work is more on one partner than the other.

Have the partner make a nominal contribution on the first deal maybe 10% to your 90% and split the deal that way. Then pay them a fee for finding the deal and pay them 8-10% of rents to manage the rental(s).

This way the partner is getting paid more precisely for what they contribute. If the partner moves out of state next year they are still a 10% owner, but you simply hire another property manager for that same 8-10%.

If the partner wants to get a bigger cut on future deals, they can save their money and buy into a larger percentage on the next deal.

I'm sure you'll get differing opinions but this sounds more clean and simple to me.

[Steven Catudal]

Quote from @Steven Catudal:

Hi all,

I am looking to partner with a friend of mine to purchase some rental properties. I will be funding the deals and he will be finding the  properties, diligencing, and then managing the properties. What does the partnership split usually look like in these situations? 

Thanks!

One thing to clarify. He would not be managing the property himself but hiring a property manager to do that part.

Pretty much, I would be funding a large part of the deals and he would be doing all the leg work, getting it set up, and then managing anything that comes up.

[Adam Bartomeo]

I have always done a 50/50 partnership in these scenarios. I am the boots on the ground and provide all of the time and my partners supply the money. It is a great deal for the silent investor as they typically make 50% - 100% COC in less than a year.

[Preston Dean]

Hi @Steven Catudal

There are a few different ways you can structure your partnership. Here are a few I have heard of

1. Equity split - This is more of a straightforward partnership where profits are divided based on the initial capital invested. Meaning if one partner initially contributes 60% & the other contributes 40% then that would naturally give you a 60/40 split

2. Time Commitment - Basically if one of you spend more time on the project than the other they should be compensated for that time. The split obviously can be up to you guys 

3. Promote Structure - This is usually if you guys have 1 person who handles the majority of the business and the day-to-day operations. Obviously this person would naturally have more %

Regardless of what structure you guys decide on make sure it is clearly defined! Even if yall are friends just lay everything out on paper where its clear.

Cheers from Fort Worth!

[Aristotle Kumpis]

I would highly recommend you create an LP agreement. And the split is whatever you decide on. 50/50 is what a lot of people usually do.

[Nicholas L.]

@Steven Catudal

i don't understand the value that he is bringing... those are all just items you can pay a professional for.  so what's the "partnership"?

i have people in my network who find deals; they get paid if I buy them; i diligence them; and then my PMs manage them.

i didn't look at your profile, but do you already own rentals?  how much experience do you have?  

[Joe S.]

Quote from @Steven Catudal:

Hi all,

I am looking to partner with a friend of mine to purchase some rental properties. I will be funding the deals and he will be finding the  properties, diligencing, and then managing the properties. What does the partnership split usually look like in these situations? 

Thanks!

  Is he’s managing the property, give him a Property Management fee. If he finds the property, give him a finders fee. 
I don’t know how skilled etc. he is so I am answering off of first glance.