What is a fair percantage in this partnership?

[Alberto Nikodimov]

Hi Everyone!

I have an investor who has been investing with me for a long time and he now wants to partner. We have an amazing track record with the investment properties he purchased through me as an agent and we are good friends. He offered me to partner on a new project and I wanted to get an advice on what is a fair percentage for this partnership for each one of us.

The plan is to purchase multiple properties, few at a time, rehab,rent and refinance (BRRRR) and hold while buying more. My role will be finding the properties, handling the purchase process, rehab, management and also putting 10% of the purchase price and rehab cost. The rehab will increase the value of the properties by at least 20%. He will be putting 90% of the purchase price + 90% of rehab. All properties will be owned in an INC or LLC. I will not be getting paid RE commissions or management fees in order to minimize expenses and make the investment as profitable as possible. I'm interested in equity.

What do you think is a fair percentage for each of us based on what we offer?

From what I've heard there is no standard rate for the industry and it all depends on negotiation but I want to hear what you would do in my position!

Also, as we grow there won't be that much need for the money due to our growing portfolio, cash flow and increasing equity. How do I structure the deal based on this? The money will only be essential in the beginning.

I look forward hearing your opinions!

[Darius Ogloza]

The measure of a good partnership agreement is not what happens when everything goes as planned but what happens when the proverbial sh*t hits the fan.  Your rehabs may increase in value 20%.  They may also decrease in value due to market conditions for a time period and that is when your partnership will be tested.

As a 90% cash contributor, I would no way agree to a 50/50 split.  I could hire a realtor at no cost to locate properties, and hire a project manager/GC to manage rehabs for me at far less total cost than 50% of the enterprise (unless the enterprise itself is pretty shaky and then giving away equity is like giving ice cubes to a resident of the North Pole).  However, your services will plainly have value and, accordingly, you deserve more than 10% of the equity in the deal if everything goes according to your initial playbook.  As the 90% contributor, I would be thinking in the range of 25%, with the possibility of going to 33% if you prove your value over time.  This is as much art as science but that's my 2 cents.