I found and analyzed a deal. A silent partner will provide 15% down payment. I will use my good credit to get a loan to finance the rest 85% of the purchase price. I will also do most of legwork and management of the property during a possible 10-year holding period. The surplus cash from renting out the property will pay for necessary repairs, then to pay back the silent partner's cash. He will have about 75% of the cash back at the time of selling the property. The capital gain will pay off his cash down payment first, then we split the rest 50-50.
Even though I will provide 85% of the financing of the deal and manage the property, I'm willing to give this partner 50% of the title. His name is not on the loan. Am I too generous?
Investor · Mapleton, UT · Member since 2014 · 52 posts · 11 votes
10y
I think it really depends on the value this partner is providing you, not just what percentage of the money he's providing. However, a bigger concern in my mind is the risk exposure and who is bearing the bulk of it. From what you've described, it sounds like you are the one taking most of the risk. Especially if the holding period is 10 years and the silent partner has no risk other than the down payment.
If this is a deal that is entirely undoable without the down payment money from this exact person, it may be better to get 50% of something rather than 100% of nothing. But, if it's still possible, I'd suggest shopping around for other sources for the down payment. If you find one, you can negotiate better terms with them, or with the original investor. If not, you still have a deal that you have potential profit from.
Thanks a lot for your comments! This silent partner is the person that I'm most familiar with. He has cash but bad credit so he is willing to join me on the deal. The thing is he does not see he is being given a generous offer - he thinks he deserves interest on his down payment besides sharing 50% of the equity. Then he says he will let go of the interest in exchange of my devoted management of the rental property. I was willing to manage the property for free with him as being an occasional backup while shouldering most of the financial risks. His attitude is distastful, which gave me a lot of doubts. That's why I joined the forum to get feedback.