Partnership with Daughter for first property - how to structure?

3 Replies

Hello, I am excited that I found this forum – seem like the perfect place to get some advice!

Here is our situation. I am looking to partner with my daughter to purchase a rental home. We found a good market with a high demand for rentals and they have homes in the $50-$60k range.

My daughter (30 years old) owns one house where they currently live and her husband owns another – this one is a rental property that has been going very well for one year now.

They don’t have terrific income at the moment and have no real savings. What they do offer is that they live in the area we plan to purchase our rental home and will do 100% of the property management. She is familiar with collecting rent, managing repairs and finding suitable tenants.

What my wife and I have is the capital to purchase the home. We intend to use a home equity loan to purchase this home.

So we will handle 100% of the money and she will 100% handle the management.

My question is, how do we structure the partnership considering she will not have any money invested?

Thank you!

I would call around and see what other property manager get for one house.  I am thinking it won't be a lot. Then you will have a base for the amount to give to her in the partnership.  You can give her more or less depending on your decision.  

Thank you for your response.  I understand your suggestion.   

Since I am new to this can you or someone offer next steps on finalizing the structure.  

So, if we agree that a fair mgmt fee would be $75 per month how does this translate into a partnership arrangement?

In my mind there are two variables.

1. Paying back the loan asap

2. How to manage the equity or profits above and beyond the monthly payment?

Again, sorry for the beginner questions - I appreciate any advice you can offer.

Mike,

In my limited experience with property managers the usual flat fee is around 10% of gross income so if you are basically hiring them as such that might not be a bad place to start. In a partnership I'm involved in where I brought the deal and will be handling day to day decision making and managing the original renovation we are splitting things 65-35 so the partner bringing the funds will make around a 15% coc return annually. Any profit from a sale is split the same way after the investor gets their original funds back. Our setup has us splitting losses 50-50 as added insurance to the investor and as a way to show i have skin in the game. 

Lastly make sure to get everything in writing, I know this is family in your deal but any way to avoid confusion or conflicts down the road should things go south (in the deal or otherwise) is worth the time.

Hopefully that helps, 

Dave