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

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

Queens, NY · Member since 2015 · 130 posts · 34 votes

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. 

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San Diego, CA · Member since 2008 · 301 posts · 108 votes
10y

@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. 

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  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
    10y

    @Sean Tracey might as well hear it from the source ... 

    There are some things that can be handled remotely, some things better handled in person.

    In person:

    - Working with contractors to get units rehabbed

    - Showing units and meeting prospective tenants

    - Ongoing day to day issues, repairs, etc.

    Remote:

    - Taking phone calls for interested applicants (perhaps)

    - Bookkeeping

    - Getting insurance setup

    - Paying the mortgage or other bills

  • Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    What a community. Thanks for chiming in @Dawn Anastasi. 

  • Specialist · Planet Earth · Member since 2014 · 56 posts · 33 votes
    10y

    I think people would be surprised how much you can do remotely. I live in Spain,  my sister lives in Colorado where we have a rental together. 

    From over here I helped search for and analyze properties,  got the financing, set up online bill pay for most expenses, got insurance, do record keeping, negotiated lease for laundry,  compare quotes for repairs, etc..

    Anything basically that can be done online or over phone is fair game. She deals with local stuff that needs to be face-face. 

  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    10y

    @Sean Tracey don't sell yourself short. Just because you are not boots on the ground doesn't mean you can't add equal or greater value to the relationship. I think that you can hire the boots on the ground for less than 50% so IMO it goes both ways. Figure out what works for you and your boots on the ground and do that.

  • Specialist · Lakewood, CO · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    It's not really a formula, it's an understanding. What are your strengths? What are your partner's strengths? Use that as a guide. There will be things they need to do locally, but with technology being what it is today you can do most of the work remotely.

  • Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    @Marcel Theisen thank you for sharing your experience. That is most certainly positive to read. How did you go about analyzing the properties i.e. did you use a realtor, have access to the MLS etc?

  • Specialist · Planet Earth · Member since 2014 · 56 posts · 33 votes
    10y

    @Sean Tracey - My sister is a real estate agent so we have access to MLS, then I would confirm expenses, rents, etc and crunch the numbers to see which deals worked for us.

  • Chris AllardPro Member
    Fresno, CA · Member since 2016 · 25 posts · 10 votes
    10y

    Hi guys, I love the conversation on boots on the ground and remote partnership.  I'm actually in a new partnership like this with former teammates in another state from where I live.  The deal we worked out is that they will match me 50/50 on dollars put into properties we bought through an Incorporated and I would own 75% of revenue/cost, and they would get the other 25% and rights to manage the properties to grow their PM company.  It seems like a good deal to me, but I'm a newbie to real estate partnerships.  

    Is this a good deal for myself and them, or is there something both parties should ask for?

  • Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    @Chris Allard I'm obviously not knowledgeable enough to comment on your deal, but I'd be interested to learn if you've asked anyone else for feedback and what it may have been. 

  • Chris AllardPro Member
    Fresno, CA · Member since 2016 · 25 posts · 10 votes
    10y

    @Sean Tracey

    I've tried to get REI feedback, but haven't had any luck. I did get feedback from my colleagues at my full time job, and they like to structure. I just pre-finalized the deal today. We're my wife and I own 75% and the other 25% will be owned by our partners. They will put in 25% of whatever we invest and get PM rights at 7% PM cost (that can be discounted even more base on number of units purchased). I also have full control of the Inc. and final decisions on where to take the company. Also, they cannot pull money out of the company until we do (25% of what we pull out of course). Our goal is to scale as quickly as possible in the next 5 years. Then have the company debt free in 10.

  • Passaic, NJ · Member since 2016 · 22 posts · 9 votes
    10y
    What a great thread because I am In a similar situation myself. My sister and I would like to purchase a two family home to rent out. She lives in Tennessee and I'm here in jersey. She has told me that she wants to take a passive role and be more of the money lender in this situation with me managing the property. I'm ok with that because I know it be tougher for me to get a good loan for a home than she can. I actually don't mind doing the leg work but than it got me thinking about would we go about splitting the rental income or if we sell. Splitting the profit if any. I thought about having talking with her and getting her opinion on what she feels is right. And perhaps coming together and drawing up a contract. After all this is a business even if it is with family. I just wouldn't know how to design it because ultimately she be taking out the loan to purchase the home so it essence she have more control than me. Thoughts?
  • Investor · Chattanooga, TN · Member since 2012 · 227 posts · 114 votes
    10y

    I work with out of town and even out of country investors for over 5 years. Each partnership arrangement varies a bit but basically it starts out with a letter if intent that spells out each persons duties and monetary contributions which than converts to ownership percentages.

    The underlying point is what I call the "privates code" An example is - lets say we want to split a pie. One person cuts it in half - and the other person has first pick. 

    If one person says they will PM the property (or GC it . or finance it) for 10% - the other can choose if they want to ( either personally or hire another PM service ) so it more of less keeps everyone honest and places the eyes on the final prize.

  • Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    @Chris Allard that certainly sounds like an interesting arrangement. I wish you the best of luck with it. I'd be interested to know some more about the PM arrangement. Does the 7% cover everything, or are there fees for things like placing a tenant, lease renewals etc?

  • Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    Hi @Sebastian Bedoya. Since I'm new to REI, my only advice is to think about what kind of effect this could have on your relationship with your sister if things don't work out. If you are confident you can both keep emotions out of it, then it could only help to have someone that you're close with to help out with REI.

  • Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    @Marcel Theisen at the risk of pestering you with another question, what was your process for determining the expenses? Thanks again. 

  • Chris AllardPro Member
    Fresno, CA · Member since 2016 · 25 posts · 10 votes
    10y

    @Sean Tracey they will only charge the 7%. No additional fees.  They are vested in the biz enough to try and keep money in it for long term wealth. 

  • Passaic, NJ · Member since 2016 · 22 posts · 9 votes
    10y
    I completely agree Sean Tracey getting into business with family members can be tough. I've discussed with her that we need to treat it strictly as a business with proper documentation as if we weren't related. It just tough deciding how to properly figure out who gets what part of the pie. Since she'll be a more passive investor putting up the money for the first property and I'll be taking care of the property management aspect since she's out of state. How does one put a figure on what is more important. Clearly a discussion her and I need to have and decide. Other than that. Great discussion and seeing everyone's creativity on working out deals. I'll be sure to post once her and I come to an agreement.
  • Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    @Sebastian Bedoya have you decided on a market for investing? I assume since you'll be managing it's in or around NJ. 

  • Real Estate Broker · Windsor, CT · Member since 2015 · 1k+ posts · 268 votes
    10y

    @Sean Tracey what areas are you considering focusing in on for partnerships?

  • Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    @Melissa Gittens no specific areas as of yet. For myself, I hope to allow the right people to lead me to the right locations. I can tell when I like the way someone thinks, so if I see people that are putting out ideas, info etc. that I believe are potentially profitable, I would want to invest with them in their local market if conditions allow. I'm more likely to be the "remote" partner because I'm not thrilled with anything close to me as far as buy and hold rental property is concerned. My goal is to figure out what value I can bring to the table in order to justify my half of the deal. 

  • San Diego, CA · Member since 2008 · 301 posts · 108 votes
    10y

    @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. 

  • Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    @Kevin Yoo I'm intrigued to say the least. Thanks for sharing those details. I do lean towards thinking if the remote partner isn't bringing all the financing, then they really need to be creative when it comes to generating and demonstrating their value. 

  • San Diego, CA · Member since 2008 · 301 posts · 108 votes
    10y

    @Sean Tracey

    You are welcome. Remember, money can be measured in terms of dollars. Work is much harder to measure and so your value by how much of the work you do is much more difficult for your partner to measure and appreciate. This can lead to a lot of bickering about who is doing more work and therefore who should get more of the pie. Good luck.

  • Specialist · Planet Earth · Member since 2014 · 56 posts · 33 votes
    10y

    @Sean Tracey 

    Re: determining expenses 

    Here are a couple of good articles that might help: 

    How to Accurately Estimate Expenses on a Rental Property in 3 Easy Steps

    Rental Property Numbers so Easy You Can Calculate Them on a Napkin

    Some of the things I did before closing the deal: 

    • Got past utility bills from owner to determine monthly average over past year. 
    • Asked owner for copy of insurance policy and based on existing policy asked for quotes from 3 other insurance companies to see if they could beat that rate. 
    • Confirmed property taxes 
    • Checked cost of trash removal
    • Researched property managers and their fees to come up with accurate estimate. 
    • Asked owner for receipts for all repairs done over past year and also got quotes for any of the inspection objections that the owner did not agree to do (since these would come out of my pocket). 

    Hope that helps a little. 

  • Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    @Marcel Theisen thanks for the informative response. Much appreciated. 

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