Help- Way to split a partnership

2 Replies

Hello BP, 

A partner and I have been searching for some rental properties in two different markets.  He has taken the lead in one market, I've taken the lead in searching in the other.  It looks like the first one we have on the hook is going to be in the area I have been searching.  This is a triplex for $90k ish.  We were going to do traditional lending and go 50/50 on the upfront costs.  However, there is an option to purchase as cash via line of credit I personally have, then refi out down the road.  

Any ideas on how to structure this where my partner has some skin in the game on the upfront purchase if we choose to use my line of credit?  

First thing is whether you own as tenants in common or as an LLC. If tenants in common, you can also always have him sign a note (and if possible, a mortgage on his house or some asset) for half of the money you use, so that it's a loan to him. The instrument should be specific that he is personally liable until such time as you refinance, or he does something valuable for the company that would offset your monetary contribution, etc. Double check with an accountant regarding the regulations for making a loan in your state, but that would be the way I would handle the situation so there is some collateral.

If you own as an LLC, the operating agreement should specifically say he has no interest in the ownership of the property until certain conditions are met, and that any income goes first to the repayment of the loan and then to you 50/50.

Hope that helps some!

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