flip partnerships VS. long term rental partnerships

[Brad Decater]

Hello all!

My name is Brad Decater. I am new to bigger pockets and wanted to do an intro as well as ask a question to all of you experts out there! 

First off, I am very excited to be apart of this community and think it is an amazing space to learn RE investing! I am a Real Estate agent a little outside of Seattle Washington and am just starting out on my investing journey. I am a home-owner and am currently working on my first flip. I have been talking to some people who would make for a good partnership, however, I don't really know how to format a great partnership that is fair to both sides. The potential partner(s) would be providing mostly money. Although I would have some to put in as well, this is the main reason I would need them. I Don't have tons saved up and am still within my first 2 years as an agent so cant get a mortgage until I have had 2 years in the industry. 

I have a few scenarios I would love some feedback for.

1. My partner pays for the entire purchase price for a flip and rehab, and I do literally everything else. Find deal, negotiate and get into contract, close, coordinate rehab, sell myself as an agent...50%-50%  of net profit makes sense right? their money, my work. seems like a fair trade off. 

2. Partner can qualify for conventional loan and pays 20% down for a mortgage...same scenario on my side(I do everything else). Seems like at this point even though they paid the down payment, it is still significantly less than a full cash offer... Does this change the percentage that we should be sharing? considering his cash on cash return would be substantially better, but my work load is the same...any thoughts?

3. Partner pays for entire purchase price and rehab for a long term rental. I find deal, coordinate rehab and manage it. How does this partnership work? Does he get paid monthly-half of the cashflow? I really have no idea how these long term rental partnerships work. When you partner for these, who is on title? How does each partner make their money? does it change if this scenario is based on the person putting down a 20% payment as in the previous example, but for a long term rental?

I feel like you would just split the cash flow every month, then if you ever sell you pay the partner the full amount they invested, then whatever is left after that you split 50-50.

Pretty sure I am missing a lot and would love some insight on how partnerships work.

Thank you!

Brad Decater

[Julian Buick]

@Brad Decater there is virtually no difference in your scenario 1 and 2. Whether the partner puts up cash from his bank account or borrows cash to put it up, he is still on the hook for that amount of cash. His cash on cash, as you put it, is irrelevant. If he loses that money he is either out of pocket or he owes that money to someone. Both scenarios carry the same amount of risk so the reward should be the same. For scenario number 3, if you can refinance after a certain amount of time (agreed upon by both) and the lender gets all his money back then holding it as a long term rental as a 50/50 partnership from that point forward is reasonable. I have done that, where I provided the seed money and the partner did all of the work. Our goal is to keep this going and build up a portfolio of rentals that are split 50/50.