Financing partner - how to go about?

[Ben A]

I found a rental house with great cash flow (even after 50% rule!), and need a partner to purchase it. A friend is willing to do the partnership. What is the *typical* arrangement or agreement in this case?

a) Partner will provide the purchase resources - cash for down payment + financing.
- His money used for down payment will always be his, correct?
- Is any down payment suitable acceptable? ie, say 10% down is possible, is that OK, or should a larger DP (20%) be enforced since it affects "our" monthly loan payment, and ultimately our cash flow to split?
- Should he be allowed to "cash out" his money during the partnership? Same reason as previous -- if he cash out refi, loan is increased, cash flow decreased.

b) If I do the management, is it OK for me to take a management fee as part of expenses? Or is my "free" work on it usually part of the deal being the "no money" guy in the transaction?

c) How to best hold the property (in CA) so that it reflects both us owners? Land trust?

Thank you folks!

[Brandon Turner]

Hey Ben A - I do these kind of transactions fairly often, so I'll share my thoughts.

a.) I'd try to get the partner to do 20%. It does affect cashflow, and it's fairly standard. I wouldn't let him "refi out" his money UNLESS you also refi out your money (cause you have 50% equity.) Unless that's the only way to make the deal work, or you want to use his money to do another partnership, in which case this helps you both.

b.) I, personally, consider my management as part of my contribution to the deal. However, I don't include maintenance in there, cause I don't want to do it.

c.) I use an LLC - but I'm not a lawyer and not from Cali - so as much as it sucks, bite the bullet and set up a meeting with a lawyer.

In the end- the partnership is whatever you make it. You want both sides to feel happy. The best way to do this is to write down ahead of time what you want, and don't move around. If you tell him you need 10% , then later 20% - he's gonna be mad.

Hope that helps!