How to structure an equity partnership??

Question

I am seeking guidance on a new business partnership.  I have been partnering with someone for a while on some individual deals.

I've been a passive private lender on some one-off flip and wholesale deals over the past cpl years.

We are now looking at doing more of an equity partnership where i put this same bucket of money into the ENTIRE business in general - spread across Wholesale deals, flip deals, creative finance. In exchange for a purely cash return (no house / note equity).

Is anyone familiar with this type of arrangement? How does one determine my size of the equity stake?
Let's say the business generally generates 600k annually in net revenue.  Any criteria? Based on putting in 50k? 100k? 200k?

I don't know anyone doing this, and appreciate any experience / insight.

Ken M. · Answer

You'll probably get plenty of advice on how to do things, but the one that I suggest that you think through and implement, is each of you have an LLC (single member), you do a Joint Venture, that's different from a Partnership by the way, and one of you gets 51% ownership  and the other gets 49%. Funds can still be split 50/50. If things ever go south, and they do sometimes, someone still needs to make favorable decisions for the investment. A 50% / 50% doesn't allow for that. Otherwise, have lots of fun and may you prosper.

Pierre Guirguis · Answer

You’re really talking about a shift from deal-level lending to business-level risk, which is a very different animal.

A few key points to frame it:

• If you’re not taking ownership in specific properties or notes, you’re not really buying “equity” - you’re buying a claim on future cash flow. That usually argues for a preferred return + profit participation, not a simple equity %.

• $600k in net revenue by itself isn’t a clean valuation metric. Consistency, operator dependency, and how capital-intensive the business is matter more than the headline number.

• The amount you invest ($50k vs $200k) shouldn’t map linearly to an equity percentage. What matters is where your capital sits in the stack: first paid or last paid, protected or fully at risk.

• A structure I’ve seen work is a pref return paid first, then a split of profits above that hurdle, with clear distribution and exit terms.

The real question isn’t “what % do I get?” - it’s what risk am I taking, and how am I being compensated for it?

Chris Cadden · Answer

Are all the future properties going to be under this one entity/llc?

Gerald Pitts · Answer

I believe so, but we wouldn't hold a lot of property.  Pretty much dispo via wholesale, flipping, or selling owner finance.  I'm mainly thinking about best ways to determine valuation.

50/50, 70/30, etc.  And what criteria is used in this?

Gerald Pitts · Answer

For anyone needing further context, shoutout to Brett Tanner.  The idea was inspired by his guest appearance on Disruptors podcast - From Broke Farm Kid To Coaching Millionaires

The relevant segment is "Leveraging Strategic Partnerships" from 25:55 to 30:57 (about 5 minutes).I also reccomend the entire episode.  He has a great story, and passes along a lot of deep wisdom.

How to structure an equity partnership??

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