Help! How do I structure this partnership?

Question

Hello BP,

My wife and I are nearing a seller finance contract on an 8-unit property. We plan to bring along a colleague who has expressed interest in working with us on a deal but he has no real estate experience. We believe he will be a great long term partner and has the mindset, work ethic and money to assist us. We are having a hard time determining how to structure the partnership.

We have the deal, and some limited experience in a different market (2 years and 4 units over 3 properties in Augusta, GA). He lives about 1.5 hours from the property and we are just over 2 hours.

We would like to have a written agreement in place about each of our roles and responsibilities prior to forming our LLC. We just don't know how to structure initial cash down vs. profit sharing.

Should we go 50/50?

Should he put down more upfront for 50% ownership?

Should we share expenses 50/50 but we take 2/3 of profit?

It should be relatively low money down with some significant but not crazy rehab costs initially.

Any thoughts would be appreciated.

Thanks in advance,

Winn and Kaitlin Merwin

Scott Krone · Answer

Prior to determining splits, it is important to determine roles, and responsibilities.  Compensation should be based upon those rather than relationships.  We have seen splits 50/50 if one party is doing all the work, and the other brings the cash.  We have also seen them 60/40 and 40/60.  It should be evaluated deal by deal basis based upon level of work, risk, investment (time and money).  So, my suggestion is to determine how the company is going to be run, who is going to do what, and what is the value of those tasks.

Winn Merwin · Answer

@Scott Krone

Great thoughts. We will determine our roles first. Thank you.