STRUCTURING AN EQUITY INVESTOR

[Shannon Smith]

I have one STR myself and looking into another - I have an investor who wants to put up the 20%-25% down payment and have an equity stake. Now this same investor also wants to be a silent partner in terms of the management and running of the STR. He wants to give the money to start this business and then collect ROI on the cash flow. He would be putting up the initial cash to purchase and I'd be doing all the work to make it successsful. Would anyone be willing to give advice on how the equity percentages would be structured? Should the house be in both of our names? I'm excited to have an investor and no personal money OOP up front but I need to make sure the equity is fair given I'll be doing the long term heavy lifting to bring in the cashflow and success. Any advice would be helpful. Thank you.

[John Warren]

@Shannon Smith as others have said, with partnerships you want to have this done correctly through an attorney (likely costs $750-1000). You would then be running this as a business, so you would need your corporation to have proper books kept (an additional $750-1000 per year for your CPA) and you would need a business bank account. 

Now you get to the meat and potatoes. You have the golden goose here if you are able to do well with this place. I would look to fairly compensate your partner in some fashion for the additional equity by giving them a faster payout. Maybe you have 50/50 equity, but your partner receives all the cash flow until he/she is made whole? You then take a management fee of some type? Always think about how your partner will feel in year two or three of a deal. Will your partner still be happy? Will they feel taken advantage off?