Business Partner Equity Split Advice

[Thomas Sulz]

Hi All,

I am currently putting together a business plan and am trying to figure out what partner splits would make most sense in the scenario described below. We are looking to BRRRR properties in the Florida market. The overall responsibilities and roles of the four partners would be as follows:

Partners 1 & 2 = Deal finding process, rehabbing process, refinance process, tenant process + funding for costs associated with all the items mentioned

Partners 3 & 4 = Funding for purchasing of the property + closing costs

Through the rehab we will try to force as much appreciation into the property as possible so when it comes time to refinance we can pull out all or most of the cash that was invested into the deal. In a likely scenario where we can not pull out the full amount, partners 1 & 2 would be paid out in full for their funding and the remaining balance would be paid out to partners 3 & 4. The amount of cash left in the property after refinance (20-25%) would essentially be the remaining cash that was fronted by partners 3 & 4 that is locked into the property due to refinancing reasons.

How would you approach a partner split in this case? I know many people will recommend that partners 3 & 4 just be treated as hard-money lenders and collect their interest on the loan but we are not willing to explore that avenue. The split we are leaning towards looks something like this...

Partners 1 = ~40%

Partner 2 - ~40%

Partner 3 - ~10%

Partner 4 - ~10%

*Partner 3 & 4 eligible for more equity depending on how much cash is left in the deal after refinance.

As described above, Partners 3 & 4 would be eligible for slightly more equity (almost like a sliding scale) based on the amount of cash they have remaining in the deal after refinance.

Any feedback or advice anyone could offer would be greatly appreciated!