Splitting profits- 50/50 or no?

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Splitting profits- 50/50 or no?

Kelly Beasley
New to Real Estate · Vail, AZ · Member since 2020 · 88 posts · 24 votes

Hey fellow real estate freaks!

Ok, so I did a search already about doing investing with a partner. Not quite finding my answer. And I'd just like to hear what your input is  about this. 

I want to start investing. Yes, it's scary. I lost out HARD on a deal back in 2004 (Because, you know, EVERYONE was doing it. So I did, too. Didn't do my due diligence/research, just jumped onto the bubble bandwagon)

Like many of you are (I'm guessing), I am much more cautious now. I am a BP member, I have a couple books (One is BRRRR, which I think is a FANTASTIC plan, but it feels too risky and expensive for a/this beginner), and I am soaking in all the BP podcasts and info I can get.

Still, it's hard to trust my own judgment. I get excited about properties easily. May jump in even if the numbers aren't quite that great. 

SO- I have a friend who I have done business with for the past 4 years. We work together BEAUTIFULLY. We are extremely invested in each other. We have done well with one company we own. 

I think that RE may be a great way for us to diversify our portfolio. However, I would be putting up all the capital. He may be able to contribute a little, but I have the bulk of it. (@50K) 

Maybe a flip would be best to start? I get a mortgage on a property, I have the $ down, he helps with search, numbers, record keeping, management of the contractor, we do some of the work ourselves, etc. Maybe his parents could loan us $ for the remodel. I just FEEL like it will be easier with a partner. 

That said, would you do a 50/50 split? I do happen think that this is fair. I know he would hold up his weight in all of the efforts. He's a very committed worker. 

I'm just not sure of the percentage split. I want to be fair. 

How would you split it? 

Thanks so much, you guys on here are 100% amazing with all of your answers and help! (I DO know that percentage, lol!)

-Kelly

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Mark Albini
Realtor · Evansville, IN · Member since 2020 · 61 posts · 76 votes
6y

@Kelly Beasley if it's a friend or family member. I typically do a 50/50 of the PROFITS. I still want my original investment back.

7Reply
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  • Mark Albini
    Realtor · Evansville, IN · Member since 2020 · 61 posts · 76 votes
    6y

    @Kelly Beasley if it's a friend or family member. I typically do a 50/50 of the PROFITS. I still want my original investment back.

    7Reply
  • Kelly Beasley
    OP
    New to Real Estate · Vail, AZ · Member since 2020 · 88 posts · 24 votes
    6y

    Hi @Mark Albini! Thank you for your reply. Yes, he is someone I basically consider family at this point. True, I would want to get my initial investment back as well. Heck, I am finding that trying to find any kind of great deal is quite difficult. This is why I want help. A second set of eyes/ears. Thank you.

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    It depends on how you are splitting the work.  If you put the money in up front, then once you sell, you get that back with an agreed upon interest.  The rest you then split 50:50 assuming you both contributed equally to the flip.

    5Reply
  • Kelly Beasley
    OP
    New to Real Estate · Vail, AZ · Member since 2020 · 88 posts · 24 votes
    6y

    @Theresa Harris good point about the interest! Thank you very much for contributing here. 🙂

    0Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Kelly Beasley imo if you do a 50/50 jv split on all profits then both of you should invest the same amount of capital and ideally share the workload equally by defining roles, etc. If you are bringing most/all of the capital then your partner should be doing most/all of the work. If you work well together that is great. You could always wait until your partner can put up more capital before investing together or perhaps have them put most/all of their profit back into the biz until their capital invested equals yours and then go 50/50 on capital invested and workload from that point forward, something like that.

    2Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Kelly Beasley in other words, if you are putting up 75% of the capital and doing 50% of the work then why should the profit split be 50/50? However, if you are putting up 75% of the capital and doing 25% of the work (which is hard to quantify and practically implement) then that starts to make sense. If you each have different complementary skills and both want to actively work together (ie split the workload 50/50) then split the profit based on capital invested. So if you put up 75% of the capital, your partner puts up 25% and you share the workload equally then you should share the profit on the deal 75/25 imo. Again, if you want to be more passive while they do more/most of the work then that’s a different story.

    2Reply
  • Kelly Beasley
    OP
    New to Real Estate · Vail, AZ · Member since 2020 · 88 posts · 24 votes
    6y

    @briangerlach thank you. Great input.  I think half of my issue is I’m afraid to do it alone. He really doesn’t have any capital to contribute. What he would bring to the table is help in choosing a property, reassurance that the numbers are right, the decisions are well-made, and he can/will be able to help out with some of the physical labor. IF he’s even interested in taking a project on.

    You’re right, it would be difficult to figure who does what percentage of work. I know we would work it out, however we decided to proceed. 

    It just feels like there’s SO many decisions to make to choose an investment property. Even deciding which plan would fit best for the money I have to invest, my lifestyle, and how much I do/don’t want to have to put into it monthly. That’s not an easy decision.

    Everyone says you should know exactly what you want to do, have a specific plan, a specific area picked out, and have your team set up ahead of time.

    It feels to me more like I’m going to learn along the way and I just better jump in and do it. That first property teaches you so much, it’s invaluable. Still, I’m looking for ways to figure out what first plan of attack would be best. 

    Definitely feels like having a partner in crime would be beneficial. But what do I know? 😐😔 Trying!! 

    0Reply
  • Account Closed
    Lexington, KY · Member since 2018 · 169 posts · 77 votes
    6y

    Just marry him then you wont have to worry about the %

    7Reply
  • Daniel ZapataPro Member
    Rental Property Investor · Bay Area, CA · Member since 2018 · 64 posts · 39 votes
    6y

    Kelly,

    If the partnership is what will move you to take action, it's well worth the 50/50 split. As Mark mentioned, the split should be on the profits, so that you make sure you re getting your initial investment back and not paying your partner out of your own pocket. If you are taking out debt to put up your money (i.e. from a HELOC), you should also account for the interest on the debt payments.

    There are lots of tales of partnerships going bad, so I highly recommend getting the partnership in writing, covering all aspects. In addition to defining the split, you should cover what if scenarios such as you can't agree whether or not to keep or sell a property.

    Good luck!

    Podcast Guest on Show What to Do TODAY to Instantly Find More Real Estate Deals
    2Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    6y

    Don't forget to put in some benefit to whoever pays for the material and hired labor for the work that is done to flip the house.  If his parents put up and risk that money they should get paid back with interest too prior to taking out profit and probably get a percent too....or high interest rate

    1Reply
  • Gail W.
    Investor · IL · Member since 2019 · 151 posts · 135 votes
    6y

    I am no expert, but this is how I would structure it: Down payment should be paid back with interest before any profits are disbursed. Any construction labor should be paid at the exit of the deal as an agreed upon  hourly wage the same for both parties. Book keeping paid at exit by an agreed upon amount, whatever is customary in your area. Construction management paid at exit as a percentage of the budgeted rehab, 8% I believe is a fair percentage for professional management. Property search and working numbers is what is done to earn the profit from the deal to start with. After these expenses and all others split 50/50.

    I know this seems a little OCD, ( it would not be the first time I was accused of that) but it seems the most fair way to split, and possibly could prevent disputes or sore feelings.   

    4Reply
  • Sue Hough
    Developer · Chicago IL · Member since 2019 · 150 posts · 125 votes
    6y

    @Kelly Beasley assuming you are taking your investment plus interest prior to any “split”, there is no rule off thumb!  It is what you negotiate with the person and each party feels they are part of a fair deal.  

    It seems you have a strong long lasting relationship with this person and you trust them.  Having said that, 50/50 seems the way to go.  In life money often represents other emotionally entanglements. Anything other than “equal” in this circumstance would most likely disrupt the relationship you have already established.  Money is never the only or most important factor in a successful business venture.

    Good luck to you!

    1Reply
  • Kelly Beasley
    OP
    New to Real Estate · Vail, AZ · Member since 2020 · 88 posts · 24 votes
    6y

    @Account Closed lol! That’s the perfect way to ruin our friendship. 😂 MARRIAGE!!!

    3Reply
  • Kelly Beasley
    OP
    New to Real Estate · Vail, AZ · Member since 2020 · 88 posts · 24 votes
    6y

    @Daniel Zapata great thoughts, Daniel. Everything is official in our current partnership, I imagine we will do the same if we partner to do real estate.  We work SO well together. It’s uncanny. 

    0Reply
  • Kelly Beasley
    OP
    New to Real Estate · Vail, AZ · Member since 2020 · 88 posts · 24 votes
    6y

    @Lynnette E. thank you for your input. Yes, the parents would definitely get interest. And possibly a small percentage.

    All of these ideas from everyone are very encouraging/thought provoking for me. So thank you Lynette, and thank you everyone.

    0Reply
  • Kelly Beasley
    OP
    New to Real Estate · Vail, AZ · Member since 2020 · 88 posts · 24 votes
    6y

    @Gail W. lol, OCD? Me, NEVER! 😂 I definitely have OCD tendencies but not when it comes to business. When you say professional construction management, are you talking about the contractor? Or do you mean us doing the work ourselves in certain areas? Thank you in advance.

    1Reply
  • Kelly Beasley
    OP
    New to Real Estate · Vail, AZ · Member since 2020 · 88 posts · 24 votes
    6y

    @Sue Hough I think you’ve hit the nail on the head. We have NEVER had a quarrel over one of us working more than the other, one of us not holding our own weight, etc. He even came and helped me with my property in Florida a couple of years ago. There was nothing in it for him. He just wanted to help.

    Yes, we make a VERY good team. This is a big reason I’d like to bring him in on this whole idea of how we can make more money as a team. 

    So I think you’re absolutely right here. We are tried and true, and I’m guessing 50-50 will work perfectly for us. (after I get my $ out with interest) 

    Wise words, Sue! Thank you. 

    0Reply
  • Rick Pozos
    Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
    6y

    @Kelly Beasley you have gotten some great advice for partnerships. BUT is now really the time to buy something?? I think it is definitely the time to start marketing, making connections, but not the time to buy. You have to get started 6 months or a year before you actually buy something. NOW would be that time to start researching, networking, as soon as meetings start up again that you should go to some. In a year you should be ready to buy something that has come down in value somewhat. 

    If you dont see that we are at the top of the market, you will lose money AGAIN. I dont know if you have noticed, but everyone is doing it again. When you see teachers, plumbers, janitors and everyone else say that they want to flip some houses because their friend did it and made 50k easy, THAT is when you know the market is ripe for change. And it is.

    Be safe and stay Frugal

    1Reply
  • Kelly Beasley
    OP
    New to Real Estate · Vail, AZ · Member since 2020 · 88 posts · 24 votes
    6y

    Hi @Rick Pozos,

    Thank you for your experienced insights!

    Is it not the time? I haven't heard anything from Brandon or other on BP stating that things are going downhill. 

    I'm not arguing the point, I am just stating what I have/haven't heard. IMO, from my research, there's no reason to not invest now as far as what is going on in the world.

    I'd love to hear your points further regarding why not now, if you have a moment. I have been researching for about 2 months. Not JUMPING on anything, and biz partner would likely help me NOT do so even more, lol. 

    This navigation is challenging for sure. 

    Here's what I keep reading- people ask "Where should I invest?". The answer is almost always "Wherever you are- deals are everywhere, you make your money when you buy". (And that resonates with me, though buying low is not an easy feat) Then I read/hear that the market is doing fine, most people are getting all of their rents, etc, etc, etc.

    Maybe it's different when it pertains to hiring contractors for flipping? (Maybe this is what you are referring to as far as why one wouldn't do it right now?)

    If 'everyone' is flipping right now, I haven't seen it/heard about it. Seems to me people are ALWAYS investing in RE, which PARTIALLY discourages me as a beginner, with the understandable/common mindset that 'if hundreds of thousands of experienced investors are already doing it, how can a newbie find good deals?' 

    Then I hear/read people saying anyone can find a deal. Ugh. The challenge for a newbie is real. 

    My OTHER and BIGGER challenge is I am literally a nomad. I don't 'live' anywhere.

     I live in my travel trailer, BY CHOICE, full-time and I travel full-time. So I am trying to pick one area to focus on, to try to stick around in for the deal, and to invest in. (Focusing on Tucson, at the moment, as I like it there, and it's an area I will easily be able to visit each winter.)

    I want to find a property where my biz partner and myself can both park our trailers (he's a full-timer as well) on the property while we do the rehab. 

    So I am STARTING to look. Doing research. Got my BP membership so I have unlimited access to the calculators. I have an agent in Tucson. No other team members, though. Being at a distance, how do people start finding their team? (Yes, I will ask this agent for recommendations) Outside of getting rec's from an agent, all I can figure is to just call places and hope I  pick well, grrrr. (I'll look on BP as well) 

    Honestly, mad props to those of you who have ventured into RE successfully! There's SO much to consider and to figure out in order to do it. 

    I'm just starting to navigate the waters... and I guess I just kind of unloaded on you, Rick. 😂 Sorry about that! Newbie excitement/angst... 😄

    0Reply
  • Account Closed
    Rental Property Investor · Indianapolis, IN · Member since 2020 · 562 posts · 554 votes
    6y

    @Kelly Beasley

    Don’t trust your judgment, trust the numbers. If the numbers don’t work then it is a no every time. Take the emotion out of it (I know this is easier said than done lol)

    Put the partnership in writing, and note all the details. Have an attorney review and make it legal.

    50/50 would be fine with me after all expenses are accounted for. You get to recoup some interest as others have mentioned. Any closing costs construction fees come out of the deal etc. Once every cost is accounted for then split what is left. How that works exactly is a bit more complicated. Do you write him a check and dissolve the partnership? Keep the money within the partnership and do another deal? You should set all these expectations up front and put them in writing.

    What if things go south and the deal nets a loss? Is your partner going to write you a check for half the losses since he doesn’t have any up front money in the deal? 50/50 works both ways. Good and bad. Just something to think about. It’s easy to think about splitting profits, no one wants to split loss. Get it in writing and discuss it.

    Best of luck to you!

    5Reply
  • Logan Gore
    Rental Property Investor · Bedford, IN · Member since 2019 · 1 post · 1 vote
    6y

    @Kelly Beasley I am actually in the process of a 50/50 split on a flip with my contractor. Our agreement is that we split profit 50/50, I supply the funds, he supplies the labor. He is only making me pay for material and not charging any labor for the build. Yes I could make more profit if I were to just pay for the labor, but it is a cheaper route for me with the upfront cost. It is also building a great relationship with my contractor for future builds. I will be more than happy to sacrifice a little cash for a great relationship with who is vital in the process of real estate. Good luck with your adventures!

    1Reply
  • Ben Miller
    Flipper/Rehabber · Lancaster, PA · Member since 2019 · 4 posts · 7 votes
    6y

    @Kelly Beasley . It all comes down to how much you value what he brings to the table . Your bank account will always be a reflection of your own personal growth . In other words . The more you invest in other people the more growth you will have personally. Best of luck to you 👌

    2Reply
  • Kelly Beasley
    OP
    New to Real Estate · Vail, AZ · Member since 2020 · 88 posts · 24 votes
    6y

    @Account Closed very goon perspective on the loss part. Yeah, best for sure to make it all legal. Wouldn't want a RE deal to ruin what we have going well with our other business. It's all so very complicated. 

    At this point, my brain is leading me to just start doing some AirBNB hacking. LOL! (And even that is shaky at the moment with shutdowns and COVID.) It just sounds so much easier. 

    Dealing with a contractor- all of that sounds a bit nightmare-ish if you don't have THE MOST AMAZING CONTRACTOR EVER. (Does that person even exist?)

    Life is hard. 😂 😐

    Maybe I will stick to buying and holding. I just do wish I could incorporate him somehow into finding deals and profit-sharing. We have all of our eggs in one basket for the most part with the website company we own. Looking to diversify. (AND to have some kind of non web-based project at the same time.)

    0Reply
  • Kelly Beasley
    OP
    New to Real Estate · Vail, AZ · Member since 2020 · 88 posts · 24 votes
    6y

    @Ben Miller I couldn't agree more. My bank account reflects my partnership with him for sure. I really do feel that we can be successful in this area as well. It would be new ground for both of us. But the best things in life tend to be the ones that scare you but you do them anyway. Right? 

    Here's to new ventures!

    0Reply
  • Matt M.
    Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    @Kelly Beasley

    If you are putting up the cash, and securing the financing, you have way more skin in the game. If you have the time to manage the flip, do it yourself and save the potential headaches. If the partnership goes south, all the financial burden is on you. Definitely not a 50/50 scenario to me.

    3Reply
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