Bringing on a new partner

5 Replies

Over the last 5 years we (my wife and I) have acquired 5 properties that we rent to college students. I graduate medical school in one month and will be moving 7 hours away for a 4 year residency. My business partner has been very involved in day to day operations and rehabbing while becoming more familiar with the big picture strategy of acquiring new properties. We have in place a property manager who is very familiar with college students. My question is: how do we structure future acquisitions with my partner in the mix? He has little credit or capital. So we would be using the relationship I've established with a local bank as well as our capital. I am willing to put the partner on future loans. The way I see it there are 2 pools to split: equity and cash flow? Any suggestions will be much appreciated.

I have similar problem. no real good solution yet.

If your partner has no capital or credit. what do they bring to the team.

I need a partner strictly for more capital. I have some people willing to provide capital. i just havent figured out how to structure the deals.

Hi Bryan,

Have you looked into a Joint Venture agreement? Just a thought.

In my case the partner brings a physical presence to our investing area. I will be gone for 4 years and will not be able to watch over the existing properties while also on the lookout for acquiring new properties.

In your case, could you offer a low percentage to all the potential partners willing to supply capital and see where your counters come in?

On my first multi unit deal I had no capital, but lived 2 blocks from the property and was willing to manage it. My partner lived an hour and a half away but had the capital to invest.

Our arrangement was that he would provide the capital to start the business (down payment and a start on operating capital). I would manage the property and run the day to day. Every year that the business was profitable I would earn an increased equity stake (profitability was the indicator of good management performance on my part). When we started I had a zero ownership. After the first year, I earned into a 5% stake. After the second year I was up to 10%. We agreed to a cap at some point but we never got there. I moved out of state and sold my interest to my partner.

This was a great way for me to get started when I had no capital but could do all the work. If you have the capital but need someone to do the work, maybe try something like I did. The key is that you have to really trust the guy and spell everything out in writing.

Good luck.

Medium logo flatWade Sikkink MBA, Sikkink Properties | [email protected] | http://www.rentmoney.biz

@Bryan Otto  @Wade Sikkink @Eric Manthey

Thanks again for the input guys. Wanted to give you an update. Went with a series LLC set up similar to the way Wade mentioned. Here is the setup:

Equity

  • After year one, 5% equity
  • After year two, 10% equity
  • After year three, 15% equity
  • After year four, 20% equity

Profit share

  • After year five, 5% of profit
  • After year six, 10% of profit
  • After year seven, 15% of profit
  • After year eight, 20% of profit

Wondering how other people have set it up and plenty open to your thoughts here.

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