Question for structuring a JV deal

[Devin A Hanley]

Hello,

I am currently in the process of purchasing a multifamily and I have someone who is interested in doing a joint venture on this property with me. They willing to put down a 25% down payment. We plan to hold this property as a long term investment. I would cover the closing costs and initial renovation costs, which are not expected to be more than a few of thousand dollars. I would handle the day to day operations on this property, which primarily will consist of managing our property manager.

Their down payment would get them 45% of the property and it's earnings. They will also receive 8% of their initial investment back before I am able to start to take my share.

I am curious what peoples opinions of this structure is. Do you believe it is fair? I am not sure what the typical arrangement, if there is one, for a deal like this would be.

I appreciate an insights any of you may have. Thank you for your time!

[David M.]

@Devin A Hanley

So, how are you taking Title?  How would you "...not be legally responsible for something that the other partner does?"

I still don't see why they would get 8% back up front...  

You each put something to capitalize the deal.  He used cash, you used your credit.  I see what you said, but don't really agree.  Let me ask, when you said "...45% of the property and its earnings," did you really mean that the investor would have a 45% equity stake AND 45% of the rent vice 45% of the 'profit?'  That's way too much, that's why I wondering if this was considered like some sort of other deal..

You could almost flip your argument around in that he is leveraging your credit...  I wouldn't over complicate it.  People also tend to be concerned about what the other party is "making" on the deal.  Sure, you need to make sure it works for both, but don't get "over concerned."  You guys realize that one is 100% leveraged and the other is 0% leveraged?  Trying running statistics with those and your head will spin...