HOW to handle partner with MONEY💰 , no time or knowledge

Question

I’m doing due diligence on a triplex and duplex that owner prefers to sell together! I don’t have $100k to put 25% down. A family friend is interested in going in with me, he has the $$$$$ to put down. What is the best way to set up this “partnership “ in the deal? I do all the work and manage he does down payment we split 50/50? Please advise from experience or knowledge. I appreciate

Jeff Cichocki · Answer

@Mo Muigai,

You need to ask your money partner what they want/need to feel comfortable in the deal. Whatever that is (as long as it still works for you) is what you should set up. That means it could be a true JV, it could be a loan, it could be a participating loan, it could be an option, it could be a lot of different things. It could be a blend of more than one of these things. There is no one right answer. You have to sit down with your money person and figure out their needs. Without knowing their needs, everything you offer is just speculation. Make the wrong offer to many times and you could easily scare your partner away.

My advice... Stop asking us what we would do and go ask them what they want (sorry. that sounds a lot more harsh than I actually mean it). After you find that out, come back and ask us how to help you structure something that fits that. After you have a structure that looks good to both of you, get an attorney involved to draft the agreement.

Good luck.

Mo Muigai · Answer

@Eric C. 🙏🏾 thanks

Christopher B. · Answer

@Mo Muigai

You should see what that person's investing goals are, and then back into the right arrangement.  What return do they want?  How long do they want their money invested?  Reach out to discuss if needed.

Edwin Williams · Answer

Hello @Mo Muigai this sounds as if you need a real estate lawyer for yourself to draw up a contract. Each of you need your own lawyers.

Frank Geiger · Answer

You loose lots of equity/cashflow on a partnership. Are the numbers more favorable if you treat them as a Lender? They may be willing to accept 6%-8% on their money which means you keep all the ownership after it's paid off.

Account Closed · Answer

Ok well ask these types of questions.

What is your current rate of return on the money you could possibly invest?

What % return would you like to see?

Whatever number he says, follow up with Is that the internal rate of return  you are looking for over how long?

The number he says is the goal you need to make happen via the split.  So if he says he wants 8% return and your cash on cash is 10% you are going to have to give up 80% of the cash flow to get him there.  Again equity kicker is a additional item.

Does he want to buy for cash then fix it up and brrrr it out?  He could then get a percentage of the monthly cash flow and some equity...

this may sound childish. But take 10 pennies and 10 quarters. split the pennies up for cash flow and the quarters up for equity.  Problem solved.  Let us know...

Account Closed · Answer

There’s nothing wrong with a partnership.

What are his goals?  What are yours?  Make it a win win.  I am doing a partnership right now and looks like a 60/40 split (60 to the Limited partners) and 40% to myself for running the day to day and bringing a chunk of money and experience.

I could if made it 70/30 and it may end up that way to ensure my partners who put up the 100’s if thousands are paid. But then the end game with the equity kicker is the icing on the cake. Some people want more cake than icing.  So each time it depends.

50/50, you bring some money and run it, he brings the majority of the money

Bob Floss II · Answer

@Mo Muigai Since you are financing the other 75%, is it safe to assume this is commercial financing? Would the lender allow you to set up an LLC, borrower the money through the new LLC with a personal guarantee so you have a partnership agreement at closing?

Mo Muigai · Answer

@Jeff Cichocki I asked them what they want they have no idea and kicked the ball back to me more like, what do you want us to do 😰😰

Mo Muigai · Answer

@Jeff Cichocki sounds almost harsh but this is absolutely right! I have no idea what he wants. I should know what he wants and then see if I am comfortable with it, then seek guidance in structure then. Right now I am just shooting blindly I bet. Thanks for waking me up strongly! 🎉🎉

HOW to handle partner with MONEY💰 , no time or knowledge

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