How would you structure this deal?

4 Replies

Hi all,

So I'm running into a good problem: I have a few SFRs that are up and running with solid cashflow and while I try not to brag, I do like talking about my successes with my friends. I've obviously been convincing because at least one of them has asked if he can buy in on the next property. It would help my growth (and progress toward financial independence) to have his capital to play with but I want to be sure and make a deal that benefits everyone. Around here a base hit SFR sells for 80K and rents for 1100-1200/month.

In this case, I would be the buyer's agent, do the searching and initial look-over of the property, run the deal (likely on my own finances through a commercial lender), and place/manage the tenants after closing. He would put in about half of the funds needed for the down payment and get updates when relevant as an out-of-state partner. 

So here are my thoughts:

-I don't think it's fair to me to go 50-50 on the cash flow from this property since I'm doing all of the heavy lifting but I'd like to keep the equity 50-50 since he is thinking of it as a retirement hedge.

-I could offer him something like a 60/40 split to compensate but that would make some of the bookkeeping tricky.

-I could simply charge a flat fee for each of the services I provide (10% management fee, couple hundred bucks for the finding of the place and a couple hundred more for closing the deal, etc)

Has anyone out there been in this kind of spot? What did you do to make all parties happy? Ideally whatever formula I work out will be scalable and I can do some more deals with other friends. 

Thanks for the link and the feedback. For your option #2 which is more like what I would be doing it seems as though the partner is getting a very good deal. You do all of the work, they put in 50% of funds and no work, and everything is split 50-50? I don't see how you are compensated for your time in that scenario.

Originally posted by @Brian Barfoot :

Thanks for the link and the feedback. For your option #2 which is more like what I would be doing it seems as though the partner is getting a very good deal. You do all of the work, they put in 50% of funds and no work, and everything is split 50-50? I don't see how you are compensated for your time in that scenario.

 They always put in 100% of the funds. We split 50/50 or they can buy the entire thing for a turnkey at $50k. What it boils down to is, most people (even a very, very high percentage of people on Bigger Pockets) don't know how to put a transaction together. And most people are afraid of making a mistake. This takes the risk out of the investment for them.