How Do You Structure Partnerships in Self-Storage Investing?

How do you structure your partnerships? The easiest way to structure your partnerships is to just do it. There are so many different potential partnerships out there that the important thing is to just move forward. If you get paralyzed by trying to come up with the perfect partnership scenario prior to finding a partner, you are never going to get a partner. In fact, even if you come up with a perfect scenario, as soon as you find a partner and property, you are probably going to find that the scenario you created doesn’t even fit the situation.

There are many different partnerships. You can set up an LLC, this is a limited liability corporation, a C-Corp or an S-Corp. Any time that you set up a partnership, you need to talk to your accountant and your attorney. What is doing to protect you the best? What is going to give you the best tax advantages? What works best with this property and this group of partners? There is never a one-size-fits-all solution.

When you are getting ready to set up a partnership, what you need to really look at is how you are going to handle the initial investments, who is in charge of managing what during the ownership period and how the profits are going to be distributed.

Are you in charge of the day to day management of the property? Do you have all the say in what happens with the property or are you both going to have an equal share in the day to day care and maintenance of the property? Who is ultimately going to decide what happens with the employees and solve tenants’ problems? Who gets to say when the property is ready to be sold and what price is acceptable? These are all things that you need to spell out before you sign a partnership agreement.

You need to know who is bringing what to the table and how they are being compensated for that investment. You may have found the property, be in charge of the day to day management, and upgrading and turning around the property. They might be in charge of bringing the down payment. Another partner may be in charge of bringing the credit. Do each of these investments get an equal portion of the profit? Does the person handling the day to day also get paid for their daily work? Again, decide these things prior to signing paperwork.

The final thing to decide is whether or not your investors are going to get paid out of each monthly payment once the property is profitable or if they are going to get an annual payout or if they are going to wait for their profit until they property is sold. Part of this will depend on the exit strategy for the property. Each partner may want a different way to receive their profits. Some may want to let it ride for financial reasons. Others may need it now. This is why you need to structure your partnerships in a way that will entice people to want to partner with you. Research some of the most common partnerships and talk with your accountant and your attorney. Find out what is best for your situation today. Then find ways to mesh that information with what the needs are of your potential partners. As always, happy investing.