Partnership agreement - clarity on responsibilities and finances

[Derrick Lumsden]

Hello BPers,

I was looking for advice about setting up a good partnership with my brother-in-law. 

I am not an experienced investor. I have owned one single family home for about a year, which I bought with owner financing from a man who owned it as a rental, and I am currently negotiating on a four plex with the same seller. 

I have a full time job and so does my brother-in-law. We both have jobs that move locations intermittently and looking to invest in a third market closer to his parents. Our thinking is to do buy and holds in a place where we can pay responsible family to manage it. 

In the market we are looking at (rural Lehigh Valley, PA) there a great opportunity for BRRR investing in class B rentals.

We are looking to set up a partnership. He has money he is looking to invest and I have more experience than him and have done a lot more reading and research than him, even if I am still pretty wet behind the ears. We are both inexperienced in the rehab side and even more scary would need to do it from a distance. On the upside we could recruit paid family help to manage the project. 

I know there are risks with investing with family and would like to set it up as best as we can. Does anyone have rough partnership docs they would be willing to share or example docs available online to sift through to help us think through the issues? Does anyone have advice about setting up such a partnership? 

We had originally talked 50/50 in terms of ownership. But I am wondering if I shouldn’t privilege his money at 70. Or if I should give a guaranteed 8% of principle and we split the rental. Any thoughts about fairly structuring the financial shares? 

[Daniel Hyman]

@Derrick Lumsden

If you haven't done so already, try to reach out to an attorney. Many would offer a complimentary consultation to help guide you in the right direction. Sure, there are boiler plate operating agreements out there. But every partnership has its own nuances. Spending some time with an attorney on the front end could help to avoid potential pitfalls down the line.