Hi all! I am looking at joining a friend of mine that I know and deeply trust in our first real estate venture. I am a health professional and have $200,000 extra in after tax cash a year looking to invest into real estate. However I have little time. My friend has some experience in purchasing and managing rentals and has a real estate license. I have money and no time. He has time and no money. ð. So we would like to come into a partnership where he would use his sweat equity in finding deals and then managing them, doing a lot of the repairs himself. I would provide the cash and financing. We would create a LLC partnership. Any thoughts on what is win win for both of us in terms of percentage ownership. I know this is a complicated question. I do have a competent business/real estate attorney but wanted to ask what others thought. Thanks so much!!!!
@David Wilson Before even getting into percentages or building an LLC. I'd sit down and go over what your goals are going to be. What you're looking to accomplish. What your friend is looking to accomplish in this partnership. Build a business plan together that way you understand what your responsibilities are and what's expected of both you and him. That's not to say you haven't already done this but just something to think about. ð¬
@David Wilson I agree with what @Daniel Brown said and would add that the person who brings money to the table is taking way more risk and deserves a bigger slice of the pie; don't sell your contribution short. Also who will secure and sign loans when they are required.
Your friends skills are of value but not gating items. A PM gets 10% of gross, a RE agent gets a % of a sale. Just a word to the wise. All the best!
@David Wilson Partnerships can work great or can flop big time. Make sure you have similar goals.
@David Wilson , I agree with the above comments and suggest developing the agreements in an LLC help to formalize your understanding of how things will work and protect your relationship with your partner. Things to consider: Operating agreement, Property management agreement, Operating company and an asset holding LLC. With the surplus cash you have to invest, working up an asset protection plan would protect your cash from any unforeseen problems with a new investment. Here is a graphic of some of the things to consider:
@David Wilson sounds like there may be potential for a decent partnership. Leveraging each others resources is the way to go. As the funder you can take on 1st position as the lien holder and create a 50/50 split from there. He puts in the time and all the work and you guys split profits 50/50 on the back end. Or you can charge your partner monthly interest payments with no equity on the back end.
@David Wilson There are many sections in the book "Best Ever Apartment Syndication Book" by Joe Fairless that you would find useful in structuring this type of arrangement even though you are not necessarily structuring a large multifamily syndication. Best of luck!
Partnership's are great but it does add complexity. It should make sense from the start to make.
I have a question on why you feel the need for a partnership for this to work.
He is an agent and good at finding deals and also has experience in managing properties.
Why don't you instead use him as an agent where he finds you a property. You buy the property outright, he gets compensated with a commission.
He would then get to manage the property and get compensated as a property manager.
You get compensated in the deal by getting value in a piece of real estate below market and the monthly cash-flow.
I think this is more clear, concise way of going about it.
Let me know what you decide to do.
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