1% equity for 50/50 management?

[Blake Ramsey]

To set the stage, my business partner and I sinvested 50/50 on 3 single family homes in Colorado Springs this year at the age of 25 (average purchase price of 230k-240k). He has recently purchased 2 more homes on his own but wants to keep me involved for management because our relationship has been great to this point. Now that he is branching out on his own, what is the best way for us to continue our partnership? We have discussed the following options: 1) calculate percentage ownership annually for the portfolio- somewhat complex to include time value of money and other factors but would allow us tremendous flexibility and partial ownership of each property. 2) 50/50 ownership of the fourth house which I pay back overtime at a 4% interest rate. All profits and expenses are retroactive to the date of purchase in exchange for my management help for further purchases. 3) 1% ownership of his separate portfolio in exchange for 50/50 management. I told him option 3 didn't make sense because let's say he bought 4 houses or ~$1 million in assets, I would only net ~10k with double our current workload and no predetermined timeframe. For all I know, this could be a 30 year commitment. Any thoughts on what would be fair for both of us? Further detail: We both have great jobs (~$200k each), live in cities outside of the state which means we greatly depend on our real estate agent and my parents who are local. We want to continue purchasing many more homes together with the ultimate goal of scaling to large multifamily. The reason he is buying at a faster rate is due to an inheritance and he starts business school in the fall which will make is harder to purchase. This will shift the purchases to my name for 2 years because I will have a job but he will still have inheritance to go 50/50 on purchases. I appreciate any guidance!

[Chris Martin]

Congratulations on your successes to date. If I were you, I'd focus on your strengths. I am assuming you don't have training in property management (*see note) and that is one activity that you (and your partner) can relatively easily outsource to someone else. I'd focus on your career and let RE go as it may. Partner where it makes sense. Let the other guy do his thing as he has done. You are young, and if you get into a longer term deal that will cost you money (*note 2) if you decide to follow your career (without regard to geographical commitment) over the next decade...

Note 1: Technically, you have to be careful managing other peoples property for gain. Unless you are licensed and have a management contract.

Note 2: hiring a PM to do your function will result in expense to you, for what I see....