How to Structure Partnerships for BRRR

[Dave Bopp]

I am in the process of coordinating partnership structuring for a BRRR deal. I have a potential capital investor who is open to financing acquisition & rehab costs. I would be the general partner responsible for property acquisition, rehab management, tenant placement and property refinance.

To keep the partnership simple my proposition is to create a 50/50 equity LP in which the capital partner gets a 100% return of capital upon refinance and remaining capital left over is split 50/50 between both partners. Additionally, I would like to build in an 8% construction management fee at refi closing.

Does this seem like a simple and fair partnership structure?

Thank you!

[Michael Ealy]

Originally posted by @Dave Bopp:

I am in the process of coordinating partnership structuring for a BRRR deal. I have a potential capital investor who is open to financing acquisition & rehab costs. I would be the general partner responsible for property acquisition, rehab management, tenant placement and property refinance.

To keep the partnership simple my proposition is to create a 50/50 equity LP in which the capital partner gets a 100% return of capital upon refinance and remaining capital left over is split 50/50 between both partners. Additionally, I would like to build in an 8% construction management fee at refi closing.

Does this seem like a simple and fair partnership structure?

Thank you!

Dave, sounds fair. You can do it with an LLC where you're the managing member and the silent capital partner will be a member. It's almost the same as an LP except that your liability is not unlimited unlike being a GP in an LP. Now having said that, I am not an attorney so check with your attorney in your state.

Also, you need to put in an agreement as to what happens if you can't refinance all the money out. Also, how do you split the monthly cashflow, specially if you can't refi all the money out?

I suppose when you said you're responsible for the refinance is that the mortgage will solely be in your name, correct? If so, you might encounter a problem if the property is titled in the name of the LP because residential mortgage lenders will lend to a person not an entity. A way around that is to borrow money from a commercial mortgage lender but the interest rate will be higher.