What is a fair partenership

Question

Hello,

I have been approached for a partnership. This is good cause I don’t have a a lot of knowledge. He asked me what is a fair partnership for me? He also said he would need to be on the title and have control. I’m fine with the control portion. How do I determine a fair amount and protect myself  in the partnership?

Joe Villeneuve · Answer

1 - List all of the roles/responsibilities that is involve with any deal.  This includes all the work t hat needs to be done on deals that are never closed, and due diligence done that has nothing to do with any deal.

2 - Apply a number from 1 to 10 for each R/R (10 being most important).  These numbers are NOT rankings.  These numbers reflect the relative importance of each number to the rest.  This means you can (will) have many R/R that have the same number.  Have all the potential partners agree on these numbers.

3 - Total up all these numbers.  They will more than likely total way over 100.  Now divide 100 by that total you just found.  Remember that number...you'll use it later.

4 - Now assign each R/R to the partners, and total up the numbers for each partner.

5 - Multiply each number for each partner in Step #4, by the number calculated in Step #3 (I told you you'd use it later.  This is later.).

The numbers you arrive at for each partner in Step #5, is the percentage each partner gets.  Once I started using this formula, I've never had a problem calculating the percentages each partner should get.  This is because this is both logical, and the end percentages are a result based on the relative importance of each R/R which is agreed to before any percentages are defined.

Theresa Harris · Answer

As Joe said who would do what.  If you are doing everything and putting 20% down, then are you getting paid for your time outside of that 20%?    Also if you buy a place for $100K and put 20% down and sell it 5 years later for $150K and get 20% out (plus 20% of all the profit from the rent over those 5 years), then that 20% in ($20K) is now 20% out ($30K) plus any pay down on the principal for the mortgage (if there is one).  If there isn't a mortgage, then your monthly cash flow will be a lot higher.

Matthew Masoud · Answer

This all depends on what you're bringing to the table. If you don't have a lot of knowledge like you mentioned, do you have money? Did you find the deal?

What's fair depends on what value you provide to the deal.

Account Closed · Answer

I wish I still lived in Michigan Joe, Friday night real estate conversations with you at the bar would be so fun. I'm kind of a math nerd too. Or is it nerd math:)

Michael Smythe · Answer

You're asking for help, but giving few details.

Makes it difficult to give good anwers.

Michael Behr · Answer

Ok more info. He’s willing to do cash for deals and I would put 20% down and get 20% out. I’ve been thinking about that and it’s not great like how will I build anything? If I do 20% to the bank then I make payments and get the property at the end and in this deal it don’t seem like I’m getting anything but my 20% back. This maybe a way to build capital?

What is a fair partenership

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