Partnerships - What have they looked like?

Question

I'm curious about the various ways investors here have structured their partnerships. How did you split the workload? How much did you contribute to the deal? How much do you get out of the deal? Did you flip or hold? Do you work with the same person on multiple deals or was it a one time thing? Did anything work especially well or poorly in the structuring?

I'd love to see the wide variety of ways you all have found to make things work. Thanks

I'd love to see the wide variety of ways you all have found to make things work.  Thanks

Justin Thompson · Answer

Kyle,

In my experience partnering with someone that offers the items you lack makes a strong, long lasting partnership.  I've done a few deals with someone that has my experience and knowledge however he lacked the knowledge of the work involved with rehabs. So I brought that to the table.  However, we were so inline with each other that we started butting heads and things didn't work out in the long run.

When you enter into a partnership, you are "marrying" your partners wife and he is marrying your wife. Now some people won't grasp that concept but divorces are all to common these days. Protecting your assets against an angry soon to be ex-wife is a real risk that you have to take into account.  Remember what's mine is ours?  Yea, you're partners wife may not be involved with the LLC/business, but I bet when things go bad she's going to be looking for her portion of the equity if there is any.  I haven't experienced this but I know someone selling their 12 unit apartment building because his partner is in a divorce process.  Partnerships can be horrible or they can be great!  If you find someone with strong credit, high income but no time and you have the time, knowledge, work ethic- you two can become a great team.

I am now in a partnership with a very wealthy individual who does have real estate knowledge but not to the extent I have. I also have rehab/remodeling in my tool belt which also strengthens what I bring to the table. Right now we are partnering to flip houses. I have structured a joint LLC that him and I are members of. He buys the houses with cash, I fund the rehab and do all work involved and we split the net profits after the sale. While I am doing more physical labor, he is taking the bigger risk.

For example a current deal we are involved in:

Purchase Price: $210k  (he carried all the debt/shelled out the cash:

Rehab Budget: $35k (I funded with my own money/credit lines)

Carrying Costs: $6700 (in my deals he is responsible for carrying costs)

Sale Price: $304k

After all fees etc. paid, my rehab money, his initial investment, we split the net profit 50/50. Once we hit $200k net profit, we are going to look into large apartment complexes that he will carry the debt on and I will manage for us.  In an apartment deal like that it's a bit more complicated, but if you need more advice feel free to private message me.

Kyle Sutton · Answer

Thanks @Justin Thompson that's very helpful.  I can see how holding property with other individuals could lead to some real complications down the road.  Perhaps the flip route is safer with regards to not having those long term, marriage commitments.

I think you answered what was really my main question regards how things get split.  Basically, everyone gets their initial investment back and then the split starts (probably 50/50 depending on the workload and the value brought to the table.