Structuring a deal

2 Replies

My buddy and I are partnering on a single family property. I am providing the down payment ($10k) and he is using his credit. He will be living in the home for the first 2 years, so he will be paying the mortgage for the time that he is living there. We have discussed a variety of options as to how to structure the deal once we turn it into a rental or sell it for a profit/loss?

Just 50/50 partners on profit/loss and cash flow of rent? Or should he have more "claim" to a bigger chunk of that because he has been paying the mortgage? On the flip side he is living there so you can't claim that he is paying "more" unless you claim he is living for free. 

Any suggestions? Thoughts?

The only opinions that really matter are yours and your partner's. Talk through it at length. Discuss what will happen if the profits are more than you anticipate and less than you anticipate. Discuss the process for buying the other out if one must exit the partnership early for financial reasons, health reasons, or family matters. Discuss your ideal exit and possible alternative exits. After you are clear go to a lawyer and get the operating agreement down on paper. Two person partnerships are fragile. Disagreements are hard to resolve. The more you have written down beforehand the more likely you will be able to operate your business and resolve your differences and still remain friends. Good luck.

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