Advice on Structuring a House Purchase and Sale with a Partner

[Jon Hill]

So I have an LLC that is owned 50% by me and 50% by a business partner. He's identified a house we can purchase with owner financing and only $5k down. This property currently has a tenant in it with a month to month lease. Due to HOA restrictions, we can't re-lease the property to the current tenants or lease to new tenants. However, since we can get this property so far below market value the deal is worth it to use to buy, provide notice to the tenant, move them out, then resell at a substantial profit.

The problem is that my partner is currently low on cash and can't afford to provide funds for the downpayment, pay the mortgage during the period we have the property listed for sale, or fund any other large expenses that might be involved. We are hoping to remove the tenant quickly and without too many additional costs and resell quickly. But there is certainly the potential that might not happen. Even if it takes us 6 months to sell and we have some light rehab work to do, the projected profit is still good enough to move forward.

My partner is a key part of the deal because he has the relationship with the seller and can get us the favorable financing terms. He can also help with other aspects of the deal such as getting the tenant out and prepping the property for sale.

I can provide the cash needed for the deal and fund any carrying costs until the sale. I'll also help on the other aspects mentioned above.  My question is how should we structure this so that I'm properly compensated for the risk I'm taking? Should I just loan the funds to the business at a certain interest rate, then that gets paid off first before we divide up the profits 50/50 or is there some other method that makes more sense? Just curious if anyone else has faced this type of situation and how it was handled.