Family Partnership

3 Replies

New to BP, so here it goes!

I'm looking to start a family partnership with 3 partners. The goal of the partnership would be to develop a portfolio of properties to generate passive income long term through some mix of the BRRR strategy. The difficulty is that at different points throughout the partnership, 1 party may be contributing more cash/property management/renovation labor /finding the deal as each persons role wouldn't necessarily be strictly confined, i.e. one party will not exclusively be for downpayment/renovation cost, one party for property management, one party for renovation.

Can this work, and how would we divide/accrue equity in this sort of scenario? Should we look at what we value most in finding the deal vs cash vs property management vs renovation and then apply that to our equity 'awards' based on inputs? Any sort of help with a general approach to tackling this would be great! 

Rey

We have an arrangement that's sort of like this albeit more consistent. My father provided most of the capital while my brother and I moved out here and have done most of the groundwork. We split the equity, but any capital he provides is a debt the partnership owes him. So that's one way you could do it, have capital contributions be a debt against the partnership (whether that's paid back with interest, or held and eventually used to purchase a larger equity stake in the partnership or whatever is open for negotiation). If the company starts making a profit, more active members could be paid a salary whereas more passive members are not. Or you could vest equity with the partners contingent on a certain amount of work having been done (full time for 3 years for example).

It's complicated, but it's doable. I would definitely recommend talking to an attorney.

Thanks for your quick reply Andrew!

I'm not sure how long you've been in the partnership you mentioned above, but what is your estimation on how each of the parties view it's success? Does everyone feel it is equitable and worth the time, or is it too soon to tell?