Partnering with Family

[Matthew Dunn]

Dear BP,

Quick question on partnering with a family member. My stepfather is really interested in partnering capital towards a buy and hold deal. He purely just wants a passive ROI once per year with no involvement in the daily business as he lives overseas. He's seen me recently successfully BRRRR a quadplex and get cash back out and I would like to put his cash and mine towards a small commercial multifamily.

We originally setup a partnership agreement last year before I had my cash out where we would buy a small multifamily using just his capital for the downpayment, closing costs and rehab, I would do all the work and we agreed to split the cashflow after the rehab 50/50. However, that purchase didn't come to fruition.

Fast forward to today and I'm now looking to provide around 50% of the upfront capital for a commercial deal, he will provide the remaining 50%. I'm now trying to decide what a fair cashflow split is, since i will still be doing all the work and he will be effectively a silent partner?

Thank you,

Matt

[Matthew Dunn]

Dear BP, just a brief update and follow up question. I have just about completed the agreement updates for my step father. I have decided he will earn up to 8% on what he contributes as capital from the cashflow. I am also giving him 25% ownership in that when we refinance or sell he will receive 25% of the profit. 

My follow up question is, how quickly should I state he will begin earning the 8%? We will be buying a value add apartment, so it may cashflow from the get go, or it may not and need rehab. Is it typical for a capital partner to earn on their money from the get go or only once we begin to reach a certain CoC?

Thanks!