Advice on Multifamily Partnership Structure

[Brian Pellerin]

Hi, I do SF rehabs and rentals, however, an acquaintance has suggested that we team up for a MF deal. He's already got 4 properties with 32 doors and a management company. I'm seeking advice on how to fairly setup a mutually beneficial partnership to purchase multi-family. My goal for now is to get started being a passive partner. I'd be involved in the upfront analysis and would keep an eye on the investment, but don't expect to do any of the day-to-day management. My partner is a RE agent, who's providing the deal, and experience. I'm providing the money (or down payment).

Here are the simplified proposed terms for me ("Money") and my partner ("Manager"). Partnership is 50/50.

1) Money to provide 100% of the down payment / acquisition costs

2) Manager to provide property management - no fees except for marketing / supplies

3) Net income split
40% to cash reserves to $20K (assume reserve value is accurate)
10% to Money (cash flow)
10% to Manager (cash flow)
40% to Money to repay the down payment (~5-6 yrs to 0 balance)

4) Any remaining Cash reserves at sale are first allocated to down payment, second loan principal and 3rd equally split 50/50%.

5) Cash reserves to be replenished as used at 40% of cash flow.

6) Any assessments to be split 50/50% should the reserves not be fully funded

7) Upon sale, mortage and down payment to be paid off, then any profit / loss to be split 50/50%.

8) Buyout of partners possible should one decide to sell (using pre-determined value)

9) Other partnership boiler plate stuff that attorney throws in

In addition, Manager is also requesting a 7% fee once the down payment is paid back, stating that I no longer have skin in the game (all money returned) and so his sweat equity for 6 years has earned him the 50%. It would take about 17 years of management fees to equal the down payment. Maybe after 10 years we kick in the management fee.

Is this a fair arrangement? Realize that there is no deal without the money. I also value my partner's experience. I could take a run at this alone, but won't. I was planning on investing in another passive partnership for a bigger deal. Comparing the ROI's on this little deal vs the bigger 88 unit with multiple partners (~10) and a much more experienced lead partner and a predetermined partnership structure.

Thanks in advance,

--brian