"Boots on the ground" and "remote" 50% partnerships

[Sean Tracey]

Hi, 

I'm looking to do some brainstorming for how to create successful partnerships wherein one person is the "boots on the ground" and the other works "remotely". The main goal is to get a better understanding of how to divvy up responsibilities while maintaining a 50% partner structure. My particular focus is buy and hold rental properties, but I'm sure we could all stand to benefit from learning about how 50% partners engaged in other areas of REI handle the question of, "Who does what, and how do we assign value to what we're doing, so we can both feel comfortable in our abilities to judge how close we are to an equitable arrangement?".

My immediate thought is that the boots on the ground investor could easily justify a higher percentage in returns or a lower amount of capital invested based on the work required of them. They're in the area, can scope out properties in person, face to face with people, they may very well be the people maintaining the property. PMs typically charge 10% or more once fees are factored in. Tack on some of the other responsibilities, and they might as well be running a turnkey for you. 

With that being said, what kind of responsibilities could a remote partner take on in order to make this a more equitable business relationship? Just how many responsibilities can be taken care of by a phone call, email or other means that don't require a physical presence. Dawn Anastasi and Mehran Kamari mentioned their partnership during both their podcasts, but there wasn't much of a chance to expound on the specifics as far as responsibilities go. I'd be interested to hear your thoughts. 

[Kevin Yoo]

@Sean Tracey

We go out and find partnerships to invest in. That is our real estate business model. Simply put, we are the Cash Partner and bring all the cash and financing to the table. The local person is the Ground Partner that finds, rehabs, rents, and manages the deals. We then split everything 50:50. We do certain things like purchase the property and close the escrow, buy insurance, pay for taxes, bookkeeping, get financing, etc. We do not do anything that requires local stuff like property management, contractors, tenants, comps, etc. 

You may think that this is an awesome deal for the Ground Partner because they bring no cash to the deal. But our partners are bringing deals to us that are typically 65 to 75% ARV all in that they could fix and sell for close to market value for a nice tidy profit for themselves. Instead they keep it for the Partnership. My company then refinance at 75% LTV and pull almost all of our cash out and repeat the process all over again. You see how this is an awesome deal for us.

In your situation, if you plan to not bring all the cash to the table, then you must figure out how to bring more value to the partnership such as making phone calls remotely taking on some of the work. If you plan not to bring all the cash to the table, be prepared not to get 50:50 but less because as hard as you may try, your Ground Partner will ultimately be responsible for much of the work because there are so many things you just cannot do remotely.

@Chris Allard

I will give you some feedback on your partnership. I am not quite sure that your partners are matching you dollar for dollar on cash contribution or are only putting in 25%. I am also not sure you are obtaining the financing in your name with your credit. But from what you said in your post, you have a great deal for yourself. By having your Ground Partners put 25% of the cash needed in to the deal, you are making them put skin in the game. But you get 75% of everything with preferred return and majority control. The only concession you gave up is that your Ground Partners get the 7% PM fee which means ultimately they are getting more than 25% but not much more.