how to create a deal in partnership?

Question

Hi BP community!

I'm ready to look for some partnerships with people but the trouble is, i don't know what is a good binding contract for me and another investor. What are your guys' experiences when doing partnership deals? what is a fair deal when splitting the profits of the property?

Thank you for responding and happy holidays!

Llewelyn A. · Answer

@Alejandro Lee

I have bought 10 multi-family buildings with about 7 different Partnerships, 10 total different Partners.

As long as the deal is fair to ALL Partners, the MOST important thing about the deal is the Partners.

A Good deal with bad partners is a VERY bad deal. So you can imagine what a Bad Deal with Bad Partners would be like!

In order for me to go into Partnership with ANYONE, whether or not I know them personally, I do what the Bank does to Borrowers.

The reason why this is important NOT only for knowing the quality of the Partnership, but it also improves your chances of getting Loans as one or all of the Partners may need to personally Guarantee the Loan, and that implies Credit Worthiness.

So what does the Bank do?

1) Know the Income History, verify it through Tax Returns and Pay Stubs

2) Know the Credit Score and Reports. I don't go into Partnerships with people who don't consider financial responsibility a priority.

3) Criminal Background check. Don't be surprised when your Partner runs with the money and then later on you discovered he has a criminal background.

4) Make sure your Partners are not just borrowing the money to get into the Investment. If your Partners haven't saved their money, I would want to know WHY after all these years have you not been able to save enough to get into a deal?!

All of these things the Bank does.

Another reason to consider doing this, if your partners refuse, would you still be a partner with them? I won't.

After all of those checks..... good or bad, at least you got the story on your Partners.

Then, if you choose to go ahead with the partnership, that is when the fairness of the Agreement will come into play.

Just my opinion and how I do things.

Jason Hirko · Answer

@Alejandro Lee I have seen everything from 15-80% of the profits for the money partner. It depends on who needs who more. I always do 50/50 with my partners, otherwise someone will always feel like they're getting the short end of the stick.

Alejandro Lee · Answer

@Jason Hirko, from what ive read, people usually do 50/50 with only one person dealing with the down payment and the other just as PM. do you know other creative ways of making a partnership fair?

Jason Hirko · Answer

A simple joint venture agreement usually suffices, but it's always good to consult your attorney