Partnership Agreements

3 Replies

Hello bp,

My partner and i are eager to jump into our first deal. we are going through the process of building a team for our real estate business. Our current situation is that one of us has the capitol to invest upfront but both of us want to be 50/50 partners. I am scheduling a date to meet with my attorney to help set up our agreement but wanted to have an idea of how others structure their real estate businesses and how they set roles and duties for each partner when first starting out. If anyone has actual agreements it would be much appreciated. Thanks!

Quick thought, You might consider having a preferred return on the cash invested. Say 8-10% interest and then split 50/50 after the pref is paid. 

Do the two of you have a complimentary set of skills that will make you successful as a team?

If so, the distribution of responsibilities should be obvious based on those sets of skills.  If not, I would suggest reconsidering a partnership.

Too many people assume that if you throw a couple new people together, they will be better positioned than if they acted individually.  Unfortunately, this isn't the case -- two new investors trying to work together will create more problems than if they were working alone.  The reason being, they suddenly have a lot more to worry about than investing -- they need to worry about partnership agreements, dealing with variable money sources, dividing responsibilities, etc.  That just creates more problems, not fewer problems.

Think of it as multiplying two fractions -- the product is always going to be smaller than each of the multipliers.

All good advice above. To specifically answer your question, you can structure in any number of options with the best two being one of the following: Form San entity together as each having 50% ownership and run business accordingly. Option two is to form a partnership agreement (which should be written by your attorney not borrowed from someone else who may have different circumstances or different laws effecting them) between the both of you. In either option, the agreement should spell out all duties, responsibilities, and resolutions for all kinds of issues that can occur (death, divorce, buy out options, who funds what when and how, who does what work, how hires who, etc.

In the choice of the entity, you should consult your RE attorney or CPA for the best structure for both of you. In the instance of an LLC, you will have an operating agreement, in an S Corp, by laws.

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