Need advice on a partnership (re)structuring

[Matt Kowske]

Hi folks,

I'm looking for some advice on how to structure a partnership and how others typically do this kind of thing. My wife and I jumped into real estate investing recently with another couple. We formed an LLC in which we are 50% owners and they are 50%. My wife is a realtor and knows the local market well. We bring the talent. They have a good sum of money and are able to bring the capital. We decided to split any down payments 50/50, but with the combination of capital we are able to purchase larger buildings.

This worked pretty well for a SFR we bought as our first deal as it wasn't much work. Our 2nd deal was a 12 unit and 4 unit building sold together. This has been MUCH more work for us. There is a property manager but he doesn't do as much as we'd like. As I learn more about the business it seems like we got the short end of the stick here. They're getting a great return for almost zero work while we work our butts off and make the same return on these properties.

They DO want us to be compensated and we have been paying ourselves $25/hr for our time from the business -- but this really isn't enough. We want to re-structure and/or pay ourselves more. We are considering doing future deals on our own. Thanks to BP I've figured out that we probably do have enough (with creative financing) to do this on our own which I think would be better for us in the long-term. 

I'm looking for advice as to how to establish fair terms of a partnership or if we should just get out completely. There are other considerations I need to learn more about too. If we can get better financing doing it as individuals rather than an LLC that is important. Our two mortgages on these investment properties are 7 year ARMs but I keep reading about other investors buying multifamily properties with fixed rate financing -- we haven't been able to find this in my area but that would be great if we could. I really like the idea of a portfolio of multi-family buildings that focus on cash flow. I'm not sure if operating as a LLC immediately puts us into "commercial lending" world and doing things as a sole proprietorship would help with future deals.

Sorry this got long winded. What are some options we should consider? We could a) do future deals on our own b) change our splits to something like 60/40, c) simply use them as private lenders with favorable loan terms for both of us, d) charge more for our services (finding deals and property management) .... we are new to this and want to make sure whatever we do will not impede us for future investing.

Thanks for any help!