How does the partnership work?

5 Replies

I have a partner who is a contractor, our plan is to buy properties need seriously rehab, we will put equal amount for down payment, closing cost, material for fixing. He will fix properties and I will manage properties. My questions are what are fair ways to work out between both parties? How do people determine how much partner get paid? 

Thanks

Yanmin

There are a lot of ways to structure this partnership and unfortunately there is no perfect way.

I think as a start, you need to understand how much each person's job responsibility is worth and the best way to do that would be to research how much a 3rd party would charge you for the job. 

Let's start with you, the property manager, if you pay a property manager you would probably pay 4%-10% of monthly collections and a leasing fee.  What do you estimate that to be worth?  Are you a licensed realtor or will you be hiring one when you sell the project?

Your partner, as a general contractor, will be spending a lot of time on the job site supervising the renovation.  This could be quite costly but you could obviously get some estimates and bids to determine how much this job responsibility is worth.

In my opinion, if you are a licensed realtor and you can lease/sell property without charging the partnership a commission, then perhaps a 50/50 split would be fair.  

As Jason said - there are many ways to structure and no right answer. What do you feel is fair? Have you discussed splits with your potential partner? If it were me, I would look at 50/50 from my end and see if I felt that I was worth more or less than that depending on what I was bringing to the table. If I felt I was worth more (I do when it comes to using cash partners who want little to no involvement), I would adjust the split to what I feel is both fair and worthwhile for both. Do your evaluation on what you think your involvement is worth and bring that to the table with reasons why you feel that split is what you feel is fair. 

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Is he doing the work alone? I assume there will be several other guys under him working on the rehabs. Are you splitting their pay 50/50?

make sure the both of you work out all the details prior to entering a contract together. It gets very difficult when it comes to money and things are not worked out ahead of time.