Partnerships in Midwest

[Douglas Rice]

Question for the group. Here is the scenario. Three persons want to invest together and start a buy and hold portfolio. How should they structure the LLC? Person 1 - real estate agent in market, will source the deals, contract, rehab and rent. Possible management. very limIted $$$ Person 2 - great w2 job and tons of cash. Wants to be silent. Person 3 - great w2 job. Active Investor, wants to be active Partner. Has cash to contRIBITE Looking for thoughts from the group.

[Scott Krone]

For us, we begin by defining roles before we address compensation.  The roles determine the amount of time (value), money contributed (value), and expertise (value).  Each is a vital component, and the three of you need to work through the roles first.  Otherwise it can lead to resentment (I do ALL the work.....).  What works for you may not work for some.  For the compensation, once we define the time value of the work, we also address the risk tolerance for the investment.  For instance, a property manager can be hired for 5% to 10% of Gross income.  It is easy to place a value at assessing that time.  It can be hired on the open market.  With respect to money invested, what is the proper risk associated with the investment.  If cap rates are accepted valuation 6% rate of return, then there is a basis for that conversation as a starting point.  Hope that helps