Deal Structure for Outside Capital Investment

[Brandon S.]

My business partner and I already own one single family dwelling and have another purchase agreement signed on a duplex. In my city there are very favorable rates (15 year note with 20% down, amortized over 25 years at ~5%) and good prices. We clear $300 to $400 cash flow on our single dwelling and will do the same on our duplex. We are rocking it.

Anyway, we are out of money personally for the down payments but have access to outside capital. The first and preferred source is from our parents. By coincidence, both own large amounts of farm ground that do not return much on investment. If you run the figures, using the cash once sold to buy rentals is HUGELY more advantageous, and affords cost of living cash flow for them, which the land they own does not currently at all.

My question is: what sort of capital structure is "fair" in this situation. I or me and my business partner would do ALL of the work but we do not have the capital. I've been toying with shared income 50-50 but also an increasing equity stake in the company as years go on. At first I thought I'd form an LLC with my mom and we'd share 50-50 equity and income, but that means on day one I own 50% of a company I didn't contribute any money to. But I'm doing all the work.

I know it's whatever you can work out, but I'm looking for a starting point for being fair, as this is my mom and we want to do right by them, though it will be completely passive other than they take on the material capital risk.

Make sense? Thanks for the advice.