Common equity partner splits?

8 Replies

I found what is shaping up to be a good BRRR house but don't have 100% of the cash needed for the purchase and rehab. I have a few friends that are interested in REI and I plan to reach out to them to see if they are interested but I would like to have rough terms to present to them as well.

If, for instance, a partner puts up 50% of the cash needed but I continue to do all of the leg work, are there widely accepted equity splits so that I am both not ripping the partner or myself off?  75/25, 60/40?  What have you guys done in the past?

I plan to also ask if they would rather just loan me the money as well but my suspicion is they would rather have equity in the deal.

Thanks in advance for the help,

Sean

Hey Sean - in my experience where I have been the money/financing and partner brought the deal, did all the work we were 50/50. The partner was experienced and had a solid track record - so fairly low-risk to me that the project would under-perform.  He brings deals now knowing that "money gets half."

@David Meadows For my clarity, are you saying you brought 100% of the financing and your partner did 100% of the leg work? That makes sense for a 50/50 split to me.

In this case I have about half of the money and plan to do all the leg work, just need someone to float me the rest of the cash needed. Any experience with that?

Sean: 

I have thought that might make things easier for you when considering percentages.  When you make you deal, are you looking for someone that loan/invest this one time or are you looking for something that might make things easier when it comes to raising money down the line?  

Real estate is about relationships and when I do something as you are by proposing a new venture with someone new, I am willing to concede a little bit more if they are someone I think I want to be able to go back to at some point.    

So after pointing out that your are matching/half the money needed, found the deal, and will be running the deal so that they have no true involvement, I would think 20-25% would be about right - probably the lower end actually.  But if they are leaning more towards 30% then I would point out what your role is but I would say to them "Look, if you think 30% is fair, I am willing to do it for the sake of building a partnership for other deals. But I would also like for you to observe the amount of time and effort I am putting in on this deal so in the future, we can revisit the "labor" portion on our next deal."   

They may agree or not- but at least you have now pointed out that you want them to observe all the time and effort you put into the deal so as to form a good working relationship.  

Just my thoughts 


Steve 


Originally posted by @Sean Johnson :

@David Meadows For my clarity, are you saying you brought 100% of the financing and your partner did 100% of the leg work? That makes sense for a 50/50 split to me.

In this case I have about half of the money and plan to do all the leg work, just need someone to float me the rest of the cash needed. Any experience with that?

Yes , that is exactly what I am saying, I was money only. So in your case, as a money only partner supplying only 50% of the capital, then I would expect to get at least 25%, +/- say 5% depending on how well I knew you and how you presented the deal (higher risk or lower risk) etc. Just my experience in Texas.  

Good luck!

 

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