Partnership Scenarios - Buy and Hold, Property Management, Rehab

[Matthew Gallo]

Hi All,

I currently live in Boston and I'm looking at a few places in Baltimore to buy and rent out.  The issue, obviously, is that I'm FAR from Baltimore, so finding and managing these properties will be pretty difficult being based in Boston.

I've been in contact with a few people there that are interested in partnering with me.  Their role would be to find the property, broker the deal, manage any rehab necessary, find tenants and property manage that property.  I would take on any sort of payment/ownership of the property.

My question really boils down to what an appropriate partnership model should look like?  For example, should I just focus on paying the partner a % of the rehab/property management?  Or, should I consider providing equity to that partner?  

I'm interested in hearing the scenarios you have put together with your partners.

Thanks,

Matt

[Coley Mitchell]

Doesn't offering a cut of the rehab budget incentivize your partner to blow up the budget? 

I am also considering best ways to go about this, and am working on a structure similar to what @Brian Ortins mentioned above, with the slight adjustment that I also want to incentivize a contractor/ partner to get the work done ahead of schedule and under budget as well.

For example... you get 10% of rehab budget if project is completed within 5% of $10,000 budget within 6 weeks of start date.  For every week past the 6 week mark that project is not completed, a 2% reduction in fee will made.  For every week under the 6 week mark that project is completed, a 2% increase in fee will be rewarded. For every $1000 dollars over budget, a 2% reduction in fee will be made.  For every $1000 under budget, a 2% increase in fee will be rewarded.  The maximum earned cut is 15%.  If cut slips to below 5%, you will be removed from project, 5% fee for finished, satisfactory work completed will be paid.  

Just my .02...