Need help with 50/50 partnership deal!

General Real Estate Investing
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Need help with 50/50 partnership deal!

Jimmy Shin
Member since 2021 · 12 posts · 4 votes

Hello,
I have a partner who is funding 100% of the money, and I do the rest, one for flip and another one for long term hold, but for furnished mid term rental. 

As for the mid term rental, we did 20% downpayment, and the construction has been delayed so he is paying the mortgage for a few months without making any profits for now, and we are projecting the job to be finished next month. 

Is this something he should cover 100% until the property is ready to make profits? Or should we do 50/50 on this?

Ias for furnishing, I usually go with my wife and furnish it all ourselves. 
does he have to cover all the furnitures? And what about our labor? Do we have to do it for free since I’m the one supposed to put the work in, but I could’ve hire some people to furnish the unit as well. 

It really gets complex where is the line that we should pay 50/50 from which point, please help me out!

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
10mo

I’d say you’re managing for free at least until he’s paid back. But really you should hire professional managers. What if you screw something up and cause a loss or a lawsuit? There’s no advantage to paying you the same amount a pro would charge. And it’s not worth your time to do it for 1/2 of what a pro would charge. 

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    10mo

    Every dollar that isn’t towards equity purchase should either be split 50/50 or they should,be paid back any “expenses” before you collect a dollar.  And then at sale their equity should be paid back to them before any profit is split.  (For flips.) for mid or long term rentals you should refinance and pay them back and then a-lit everything 50/50 or pay them interest out of profits equal to what you’re paying on the other 80%.  

    If you don’t reimburse them and pay them interest on their downpayment they would literally make more money in straight interest on a government guaranteed deposit at a bank. (Every $100k invested is worth at least $500/mo BEFORE profit a-list.)

    No, you should not get paid a penny for any labor, your free labor is the only reason you get any part of the deal.  Yes you should be paying half of all outgoing money if you plan to,keep half of,all incoming money  

    Ps. OBVIOUSLY all this is all written in to your partnership agreement BEFORE any money changed hands. Otherwise your partner should decide in a couple months it’s time to sell and take his money elsewhere.  

    2Reply
    • Jimmy Shin
      OP
      Member since 2021 · 12 posts · 4 votes
      10mo
      Quote from @Bill B.:

      Every dollar that isn’t towards equity purchase should either be split 50/50 or they should,be paid back any “expenses” before you collect a dollar.  And then at sale their equity should be paid back to them before any profit is split.  (For flips.) for mid or long term rentals you should refinance and pay them back and then a-lit everything 50/50 or pay them interest out of profits equal to what you’re paying on the other 80%.  

      If you don’t reimburse them and pay them interest on their downpayment they would literally make more money in straight interest on a government guaranteed deposit at a bank. (Every $100k invested is worth at least $500/mo BEFORE profit a-list.)

      No, you should not get paid a penny for any labor, your free labor is the only reason you get any part of the deal.  Yes you should be paying half of all outgoing money if you plan to,keep half of,all incoming money  

      Ps. OBVIOUSLY all this is all written in to your partnership agreement BEFORE any money changed hands. Otherwise your partner should decide in a couple months it’s time to sell and take his money elsewhere.  


      This really clarifies most of stuffs I’ve been confused with.
      Just to clarify more, all the renovations are covered by him, and paid back to him once it’s refinanced, right?

      What about the management fee? If we do more deals for long term rentals, I’d hire management company and obvious pay 50/50 as all other expenses.

      If I manage mid term rentals, I’d get paid for management fee 50/50 from our mutual account? Or I’d still have to work for free on this one as well?


      thank you in advance!

      0Reply
  • Jimmy Shin
    OP
    Member since 2021 · 12 posts · 4 votes
    10mo

    This really clarifies most of stuffs I’ve been confused with. 
    Just to clarify more, all the renovations are covered by him, and paid back to him once it’s refinanced, right?

    What about the management fee? If we do more deals for long term rentals, I’d hire management company and obvious pay 50/50 as all other expenses. 

    If I manage mid term rentals, I’d get paid for management fee 50/50 from our mutual account? Or I’d still have to work for free on this one as well?


    thank you in advance!

    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    10mo

    I’d say you’re managing for free at least until he’s paid back. But really you should hire professional managers. What if you screw something up and cause a loss or a lawsuit? There’s no advantage to paying you the same amount a pro would charge. And it’s not worth your time to do it for 1/2 of what a pro would charge. 

    3Reply
    • Jimmy Shin
      OP
      Member since 2021 · 12 posts · 4 votes
      10mo
      Quote from @Bill B.:

      I’d say you’re managing for free at least until he’s paid back. But really you should hire professional managers. What if you screw something up and cause a loss or a lawsuit? There’s no advantage to paying you the same amount a pro would charge. And it’s not worth your time to do it for 1/2 of what a pro would charge. 


       That totally makes sense.

      I really appreciate helping me out with clarify things!

      1Reply
    • Ken M.
      Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
      10mo
      Quote from @Jimmy Shin:
      Quote from @Bill B.:

      I’d say you’re managing for free at least until he’s paid back. But really you should hire professional managers. What if you screw something up and cause a loss or a lawsuit? There’s no advantage to paying you the same amount a pro would charge. And it’s not worth your time to do it for 1/2 of what a pro would charge. 


       That totally makes sense.

      I really appreciate helping me out with clarify things!

      I'd agree with @Bill B.:. The only thing I would add is for each of the two of you to have a separate LLC that is joined by a Joint Venture Agreement instead of a partnership. There is less liability for each of you. And I would split the profits however you see fit, 50/05 is fine, but I would have one LLC have 51% ownership of the Joint Venture Agreement so that person can make decisions in the event you two can't agree on solving a particular problem. That happens more frequently than you might think. Keep in mind, the LLCs must each have an Operating agreement to be effective. An LLC will cost you a few bucks to have drawn up properly, but the Joint Venture Agreement shouldn't cost anything. 
      1Reply
  • Marc Winter
    Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 3k+ votes
    10mo

    Partnerships are tough.  

    Make it easier on yourself and your partner by having all your 'what if" scenarios spelled out in your written partnership agreement.  Do your own research, then have your partnership agreement professionally prepared.  You can use it as a template for future adventures.

    For unforeseen circumstances beyond your control, include a resolution mechanism in the agreement.

    Old real estate axiom:  You don't really know someone until you marry them or you rent to them.  Add to this saying: until you partner with them.

    Good luck! 

    2Reply
    • Jimmy Shin
      OP
      Member since 2021 · 12 posts · 4 votes
      10mo
      Quote from @Marc Winter:

      Partnerships are tough.  

      Make it easier on yourself and your partner by having all your 'what if" scenarios spelled out in your written partnership agreement.  Do your own research, then have your partnership agreement professionally prepared.  You can use it as a template for future adventures.

      For unforeseen circumstances beyond your control, include a resolution mechanism in the agreement.

      Old real estate axiom:  You don't really know someone until you marry them or you rent to them.  Add to this saying: until you partner with them.

      Good luck! 


       Yes it is more complicated than I thought it would be when I started with him, but getting the hang of it. 

      Will do, and thank you so much for your advice!

      0Reply
  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    10mo

    These items are typically addressed in the operating or partnership agreement. If there’s any uncertainty, it may be helpful to revisit the agreement together and have a direct conversation with your partner to make sure everyone is aligned. Folks here can share general perspectives, but we don’t have insight into the specific discussions or understandings that shaped your arrangement.

    [email protected]
    1Reply
  • Jimmy Shin
    OP
    Member since 2021 · 12 posts · 4 votes
    10mo

    Thanks all!

    1Reply
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