Partnership structure - buy and hold

1 Reply

I've been searching BP for a couple of days now, with little results. Hoping that someone can help me. I'm trying to understand what is the best way to approach a partnership structure for buy and hold properties where one partner is the finance (100% or close to) and one is the locate, manage rehab, manage property, and manage future sale (5 years or more down the road).

I'm the one who is not bringing the finance.

From what I've been able to see, there are a lot of posts on 50/50 partnership splits for profit, etc where one partner funds and other other partner does the legwork if it is a flip, but so far there is very little info out there for this approach with buy and hold.

I've seen some comments stating that it would be surprising to find an investor who wanted to do this as the returns are not that great. However, if you are in a neighborhood that is quickly transitioning and what is a $40k home today is going to likely be worth $100k+ in 5 years, does this change anything?

...but there lies my biggest concern, while I am investing in areas that I believe are going to appreciate dramatically as that is where some real money is to be made, I am buying to cash flow and not guaranteeing to myself or to anyone that the appreciation will really happen. Without this, does it still make sense for my finance partner to work with me?

For those experienced investors who have done this, how have you structured deals for buy and holds and what books, templates, or other resources can you point me to?

@Alex M.

You need to get what you can from the deal with a good return for everyone involved.  Most folks here on BP would be quite happy with a 15% Cash on Cash return if all we had to do was write a check.

My strategy for that:

1. Find a property with 20% Cash on Cash return and appropriate monthly Cash Flow.  Monthly cash flow is up to you to decide.  It obviously varies quite a bit by how much you paid for the place.

2. Give the cash investor 75% of that.  They are now looking at 15% assuming nothing changes.

3. Separate the property management portion out. To the partnership/LLC/S-Corp it should look just like an expense. Even if you are doing the management yourself having it billed into the partnership allows for simple accounting at the end of the year. This allows you to remove yourself later without having to renegotiate the partnership agreement.

4. Don't be an asshat.  This seems like it goes without saying, but you'll find yourself not doing your part to the best of your abilities at some point in the future.  Family gets sick, kids have games, spouses travel and life moves forward.  Let the partners know what is going on regularly.  Sometimes you are an asshat and you need to work a little harder the next week to make up for it.

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