Buy and Hold Partnership Agreements/Profit Splits
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
Buy and Hold Partnership Agreements/Profit Splits
6 Replies
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes8y
It's whatever you negotiate. Is this a one time venture or does this partner have extremely deep pockets to keep funding your deals?
- Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes8y
Partner isn't funding my deals. He is funding 50%, as am I. But I am the boots on the ground and doing all the leg work partner as well.
- Specialist · Denton, TX · Member since 2018 · 126 posts · 84 votes8y
@Anthony Wick and @Joel Owens ,
I want to see responses to this. I have this exact situation and I want to see what advice you get from people.
I have a person who wants to invest with me where I find the deals, do the financing, manage the property, place the tenants ,etc. They are going to put up 50% of the down payment.
How have other people handled this?Do you get a percentage or a flat fee for the finding, financing?
The management seems pretty straight with a 8% monthly and a months rent for new tenants.
What if there is something like some caulking, painting or other simple work that needs to be done? I can just do it myself like I do on my other unit. Do I bill for my time?
I also live an hour from the property, so if I go up and paint some touch up stuff, that is 2 hours of time plus mileage to do that.
My partner has contacted me and asked to invest, so I want to know what is the best way to handle this too.Thanks,
James - Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes8y
I'm proposing each partner put up 50% of the down payment and any fees related to closing. Then, I manage the property for a fee of 10% of gross rents. That's not potential rents. It's 10% of actual rents received. No other fees paid to me. No fees paid to obtain financing, work with realtor, find the place, negotiations, set up inspections and/or renegotiations, not to fill a unit, not to handle other problems. The actual maintenance expenses will also be split 50/50, but I will not charge any fees for labor if I handle things myself.
What do people think of that? Yes, most of that work I would be doing if I didn't have a partner. Yes, a "professional" management company may charge 10% of rents. But, I'm definitely doing more work than a property manager, for less money overall. And, my partner is out of state and will be doing nothing but supplying funds and obviously giving the ok on any purchase/expenses/improvements, etc.
We are giving each other a 5 year commitment; at which time each partner can ask to be bought out of his 50%, either by the initial partner or by somebody else, or the partners can agree to sell the property and cash out 50/50 on any profits. Also, I want to give a 3 year commitment to self managing, at which time my fee could go to a property manager. And, each partner is committing to a certain percentage of rents (10%?) be held for capex/maintenance/vacancies, etc., up to a reserve account of $10,000, before either partner starts pulling profits out of the deal.
So, in essence, 10% of collected rents go to me for finding and managing the entire deal; 10% go to reserve account for capex/expenses, and 80% of collected rents (less PITI and expenses of course) are split 50/50 amongst the partners. And all equity/profit upon sale is split 50/50 amongst partners.
I'm open to other ideas, percentages, comments, questions, etc. on my idea for this partnership. If you were the money partner, would you do this deal, or renegotiate, and why?
- Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes8y
Follow up: I did provide my partner a very detailed spreadsheet showing "possible" profit and losses, with every expense listed separately. I also included potential equity gains at 0%, 1%, and 3% gains over a 5 year period. And, just for fun, I also included potential gains in the stock market (opportunity cost if he invests in stock market v. rental property) for the 5 year period at an industry standard 7% gains and also an optimistic 10% gains in investments. Spoiler Alert: the 0% equity gains in the rental property still outpaced the 10% gains in the stock market, due to rental income and tenants paying mortgage down. For my particular situation: the rental property gained each partner $27,536 after subtracting for initial investment, while the stock market returned $21,368 at 10% gains. However, the rental property calculation did not account for expenses paid if they are above the 10% holdout of rents each month. But, those gains are for my money partner and do not include my gains of 10% each month for managing the property.
Another edit: the numbers do not reflect that you invested the rents paid out to each partner. The assumptions are that you either spent that money or you merely stuffed it in your mattress for 5 years.
These numbers were run on a fixed rate 5.2% interest, amortized over 25 years, with a 7 year balloon, as that is what my bank is giving me.
Hope that all made sense.
- Investor · Lufkin, TX · Member since 2017 · 5 posts · 1 vote8y
I'm following this as well. We are struggling trying to wrap our heads around an equitable split where my husband has already put the deal together, his company will do the rehab/maintenance/management, while the other party provides the downpayment/ financing. We're going in with no money down, but doing all the work. If we go 50/50, should our partner pay us half of what my husband would charge for labor and materials? I can't see what's fair.
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