Entering a Partnership to fund multi-family acquisitions
I currently have 3-family and would like to expand but do not have the capital. My original plan was to build more equity in existing property and build up enough for next down payment, however I already have an investor who would like to go into a deal with me. Initially we discussed a flip to start (never done one before), so I've been thinking about structuring a partnership and acquiring a multi as that's where I have experience....here is what I was thinking. Has anyone been successful with an arrangement like this?:
- I find the properties and manage them
- He provides the capital for the down payments and immediately owns that amount of original equity, so he always gets that back. The rest of the property's equity that accrues is split 50/50
- Expenses and improvements are split 50/50
- If I buy him out down the road, I need to provide him with his original down payment for that property, plus whatever equity has accrued, and vice versa
Thoughts??
-Jared
Quote from @Jared K.:
I currently have 3-family and would like to expand but do not have the capital. My original plan was to build more equity in existing property and build up enough for next down payment, however I already have an investor who would like to go into a deal with me. Initially we discussed a flip to start (never done one before), so I've been thinking about structuring a partnership and acquiring a multi as that's where I have experience....here is what I was thinking. Has anyone been successful with an arrangement like this?:
- I find the properties and manage them
- He provides the capital for the down payments and immediately owns that amount of original equity, so he always gets that back. The rest of the property's equity that accrues is split 50/50
- Expenses and improvements are split 50/50
- If I buy him out down the road, I need to provide him with his original down payment for that property, plus whatever equity has accrued, and vice versa
Thoughts??-Jared
You can structure the partnership really anyway you want to in the operating agreement of the LLC/company. You need to have an attorney draft it though, these are the ones that are more specific to a person and partners, this is not something to draft on legal zoom etc.
The reason I say that is because you can have the agreement with really any partner; however, an attorney is going to know the verbiage to through in the agreement. This helps you and the partner in the long run when you want to leave the partnership or sell the place, or change the OA in anyway.
Quote from @Peter Mckernan:
Quote from @Jared K.:
I currently have 3-family and would like to expand but do not have the capital. My original plan was to build more equity in existing property and build up enough for next down payment, however I already have an investor who would like to go into a deal with me. Initially we discussed a flip to start (never done one before), so I've been thinking about structuring a partnership and acquiring a multi as that's where I have experience....here is what I was thinking. Has anyone been successful with an arrangement like this?:
- I find the properties and manage them
- He provides the capital for the down payments and immediately owns that amount of original equity, so he always gets that back. The rest of the property's equity that accrues is split 50/50
- Expenses and improvements are split 50/50
- If I buy him out down the road, I need to provide him with his original down payment for that property, plus whatever equity has accrued, and vice versa
Thoughts??-Jared
You can structure the partnership really anyway you want to in the operating agreement of the LLC/company. You need to have an attorney draft it though, these are the ones that are more specific to a person and partners, this is not something to draft on legal zoom etc.
The reason I say that is because you can have the agreement with really any partner; however, an attorney is going to know the verbiage to through in the agreement. This helps you and the partner in the long run when you want to leave the partnership or sell the place, or change the OA in anyway.
Good advice thank you.
Quote from @Peter Mckernan:
Quote from @Jared K.:
I currently have 3-family and would like to expand but do not have the capital. My original plan was to build more equity in existing property and build up enough for next down payment, however I already have an investor who would like to go into a deal with me. Initially we discussed a flip to start (never done one before), so I've been thinking about structuring a partnership and acquiring a multi as that's where I have experience....here is what I was thinking. Has anyone been successful with an arrangement like this?:
- I find the properties and manage them
- He provides the capital for the down payments and immediately owns that amount of original equity, so he always gets that back. The rest of the property's equity that accrues is split 50/50
- Expenses and improvements are split 50/50
- If I buy him out down the road, I need to provide him with his original down payment for that property, plus whatever equity has accrued, and vice versa
Thoughts??-Jared
You can structure the partnership really anyway you want to in the operating agreement of the LLC/company. You need to have an attorney draft it though, these are the ones that are more specific to a person and partners, this is not something to draft on legal zoom etc.
The reason I say that is because you can have the agreement with really any partner; however, an attorney is going to know the verbiage to through in the agreement. This helps you and the partner in the long run when you want to leave the partnership or sell the place, or change the OA in anyway.
Also, Does the arrangement split, seem fair? As in have you seen partnerships emerge successfully like this out there in the industry?
Quote from @Jared K.:
Quote from @Peter Mckernan:
Quote from @Jared K.:
I currently have 3-family and would like to expand but do not have the capital. My original plan was to build more equity in existing property and build up enough for next down payment, however I already have an investor who would like to go into a deal with me. Initially we discussed a flip to start (never done one before), so I've been thinking about structuring a partnership and acquiring a multi as that's where I have experience....here is what I was thinking. Has anyone been successful with an arrangement like this?:
- I find the properties and manage them
- He provides the capital for the down payments and immediately owns that amount of original equity, so he always gets that back. The rest of the property's equity that accrues is split 50/50
- Expenses and improvements are split 50/50
- If I buy him out down the road, I need to provide him with his original down payment for that property, plus whatever equity has accrued, and vice versa
Thoughts??-Jared
You can structure the partnership really anyway you want to in the operating agreement of the LLC/company. You need to have an attorney draft it though, these are the ones that are more specific to a person and partners, this is not something to draft on legal zoom etc.
The reason I say that is because you can have the agreement with really any partner; however, an attorney is going to know the verbiage to through in the agreement. This helps you and the partner in the long run when you want to leave the partnership or sell the place, or change the OA in anyway.
Also, Does the arrangement split, seem fair? As in have you seen partnerships emerge successfully like this out there in the industry?
Yes it seems fair, but what is fair to me might not be fair to him/her, and or you. The biggest thing to both of you is to make sure you are both in alignment on the agreement. This maybe a full conversation between you and him at the table of the attorney to hash things out to getting a Sunday on the books to do a brainstorming session on the partnership. Whatever is going to be the forum, that is where you tell all your wants and needs then come to an agreement; after that go to the attorney to draft it.
It might be a good for you but he might be thinking, 30/70 or whatever the case.
Quote from @Peter Mckernan:
Quote from @Jared K.:
Quote from @Peter Mckernan:
Quote from @Jared K.:
I currently have 3-family and would like to expand but do not have the capital. My original plan was to build more equity in existing property and build up enough for next down payment, however I already have an investor who would like to go into a deal with me. Initially we discussed a flip to start (never done one before), so I've been thinking about structuring a partnership and acquiring a multi as that's where I have experience....here is what I was thinking. Has anyone been successful with an arrangement like this?:
- I find the properties and manage them
- He provides the capital for the down payments and immediately owns that amount of original equity, so he always gets that back. The rest of the property's equity that accrues is split 50/50
- Expenses and improvements are split 50/50
- If I buy him out down the road, I need to provide him with his original down payment for that property, plus whatever equity has accrued, and vice versa
Thoughts??-Jared
You can structure the partnership really anyway you want to in the operating agreement of the LLC/company. You need to have an attorney draft it though, these are the ones that are more specific to a person and partners, this is not something to draft on legal zoom etc.
The reason I say that is because you can have the agreement with really any partner; however, an attorney is going to know the verbiage to through in the agreement. This helps you and the partner in the long run when you want to leave the partnership or sell the place, or change the OA in anyway.
Also, Does the arrangement split, seem fair? As in have you seen partnerships emerge successfully like this out there in the industry?
Yes it seems fair, but what is fair to me might not be fair to him/her, and or you. The biggest thing to both of you is to make sure you are both in alignment on the agreement. This maybe a full conversation between you and him at the table of the attorney to hash things out to getting a Sunday on the books to do a brainstorming session on the partnership. Whatever is going to be the forum, that is where you tell all your wants and needs then come to an agreement; after that go to the attorney to draft it.
It might be a good for you but he might be thinking, 30/70 or whatever the case.
Got you OK thanks for the feedback!