New Partner Question

[Katherine Earle]

I am about to purchase my first rental with a partner. I will be doing the property management for the rentals I buy with my out-of-state cash partner. Do I charge my "Property Management Company" a fee for the services and then split the cash flow and equity if we sell or buy each other out at some point? I will also be the agent, assisting with the purchase. Do I charge the normal commission on top of all of that or waive it as a personal transaction? It feels like I'd be getting the lion's share of the deal. He is a very generous man, but I don't want to be taking advantage of his lack of experience. 

[Kevin Sobilo]

@Katherine Earle, I'm sure others will disagree but partnerships often go awry so I always view formalizing these details as being critically important to make things go well long term.

In my mind, I would usually think that a return on the partnership should be based SOLELY on the money invested. If you invest $20k and your partner $80k, then its an 20%/80% split.

Then, you pay directly for any work each partner does at the market rate. So, you get paid normal rates for agent/property management activities. If your partner paints a unit they get paid what you would have paid a handyman to paint it. The work may come and go and its difficult to know today what that work will be and what it will be worth a few years from now. So, paying each instance for the work directly just makes more sense to me.

In this way each person gets a fair return on their money invested an also for their work invested.

If you were only doing work here, I wouldn't even be a partner. Just bank money from the work and invest into a partnership on the next deal when you have money to invest.