Partnership question- acquiring a new property

[Lauren Cook]

I could use some advice! I own two homes, one primary and one investment on my own. I also have equity (35%) on a third worth about 365k that closed in February. I have been doing house hacking for a few years and have decent experience with property management as I did it professionally for years and have been a landlord for 5 years. I recently purchased a townhouse with a partner who put up his credit/downpayment and about 12k in rehab/commission to get the property rented. It was rented day 1 on the market. I set up all vendors/projects that were larger and did a lot of work myself as well as paid for a lot and was reimbursed shortly after. I also set up the LLC and am in charge of all tracking, accounting, checking vendor work, tenant relations, two how's, etc. he sends the money and bills and I do the rest.

Originally our split was 80/20 but he changed it to 65/35 and gave me a small cash bonus since he was so impressed with my work. (I lived there temporarily on a blow up mattress to ensure all work was completed and managed as the house was an hour away from mine.)

I don’t necessarily need opinions on partnership, he’s been a great partner everything has been going well. He’s a tech guy that needs the write offs, likes real estate investing but is pretty hands off.

I also cannot afford to buy properties on my own right now as I live in a hot market (Phoenix) and nothing here worth buying is under 220k and I’m not comfortable yet buying out of my area.

The next property is his downpayment, closing costs, etc, but my credit. I’m paying about 14k off in debt in order to qualify and we are discussing what this next equity split will be. I told him without knowing if the next property needs work or if it’s turnkey it’s impossible to discuss equity split right now. He’s mentioned 80/20.

I’m struggling with if this property is utilizing my credit and I’ve already shown my track record of doing good work, why my split would be less than the prior. I also don’t want to upset him but I want things to be “fair”

Anyone had successful partnerships able to provide any guidance or advice?

[Nathan Gesner]

That's exactly why you should follow my suggestion! If each partner contributes cash but only one partner contributes labor or expertise, then I recommend you split the cash flow and equity based on the percentage of ownership at the time of purchase, and then pay yourself separately for your labor.

 If they put in $80,000 and you put in $20,000 And the property cash flows $100 a month, they would get $80 and you would get $20. If you sell the property in 5 years and cash out $100,000, they would get $80,000 and you would get $20,000.

for everything else, you pay yourself for your services. If you manage the property each month, pay yourself a 10% management fee or whatever you think is fair. If you paint the living room, pay yourself an hourly wage for your labor.