Splitting Ownership On A Rental Property in Dallas

[Lucas Hunt]

Afternoon BP Fam, wanted to hear your opinion on a rental property. My friend is going to supply the money for the down payment. I will bring $0 of my own money. But, I will be finding/negotiating the deal, listing the property for rent, screening tenants, and handling all maintenance myself. I will essentially be managing the entire property/collecting rent and my friend will not have to lift a finger. 

Curious how others have split the ownership of the investment property on situations like this? Is a 50% - 50% split fair? 

[Clint Jusino]

Quote from @Lucas Hunt:

Afternoon BP Fam, wanted to hear your opinion on a rental property. My friend is going to supply the money for the down payment. I will bring $0 of my own money. But, I will be finding/negotiating the deal, listing the property for rent, screening tenants, and handling all maintenance myself. I will essentially be managing the entire property/collecting rent and my friend will not have to lift a finger. 

Curious how others have split the ownership of the investment property on situations like this? Is a 50% - 50% split fair? 

@Lucas Hunt I'm curious as well. I actually have a friend who does this now. I'll DM you to join our group on groupme so you can ask your questions. There's several investors in the group that can help guide you with your situation.

[Chris Seveney]

@Lucas Hunt

50/50 is not uncommon - but also partners breaking up is also highly likely so what I would recommend is in the company operating agreement or in some type of agreement make sure you went through all the what ifs that could happen and how they would be resolved

It’s a lot better to resolve them now versus when their is a dispute

[Kristi K.]

Quote from @Lucas Hunt:

 I will essentially be managing the entire property/collecting rent and my friend will not have to lift a finger.

No offense,  but your friend would be better off buying the property for himself and paying a PM 10%. Why in the world would anyone give 40% of their profit to someone else? 

[Bruce Lynn]

Quote from @Lucas Hunt:

I see stuff like this fairly frequently and to me it's just a recipe for disaster. So many things can happen that you just can't predict. At minimum you should have LLC with a very detailed operating agreement. What happens if someone passes, what happens if someone's financial situation changes, how and when can buyouts happen. How would disposition be handled. However even the best operating agreement just can't address every possible situation. For example what if you decide to move and no long keep Texas real estate license. Now your offer of handling everything no longer exists. Do you still split profits 50/50. What happens if one of you decides to buy a personal home and need the credit to qualify for a new loan so needs to sell this one to make it happen, but the other partner not ready to sell yet, or doesn't want the capital gains. Who gets the depreciation? What if both of you get married and then pass away? Now you're partners with a spouse who may not want the investment or can't hold up their end of the agreement?

I think it is just a great way to end a friendship.  Have one client going through it right now.  Operating partner not paying loan or taxes and lender threatening to foreclose, who was also a family friend at the start.  OP still collecting and I guess pocketing the rent.  In my opinion lawyers are going to end up taking/earning all the equity for the guys to get out of the deal.