What is a fair partnership split

Question

Let’s say you were partnering with someone on a deal and they were going to be silent partners. You were going to find the deal, run all the analysis, run any renovations, find renters, manage the property, do the bookkeeping, etc.

What would you think all that work is worth as far as equity?
Or would you leave equity based off funds contributed and just take management fees for the additional work?
Or would it be some combination of both?

JD Martin · Answer

If I was providing funding there's no way I'd settle for 6-8% unless the operator had one hell of a track record. I can just about get that in some pretty safe investments. I would rather just fund the project at some level, with the operator having some skin in the game (say 10-20%) and take first position on a note on the property. Essentially what the OP is describing as I hear it is just like taking a note at the bank.

More commonly I see these kinds of questions because one side - usually the operator - has no money at all in the deal and expects a decent equity position without any risk to principal. That's unreasonable to me. If I'm funding 100% of the deal, I could just hire my own operator and keep 100% of the equity and profit.

Chris Seveney · Answer

First, you need to determine if you want them to be an equity partner or a debt provider. If they're a debt provider, then you take a loan and just pay them interest every month. If it's an equity provider, it really depends on each deal. Some people just want a percent of the profits; some people want a preferred return with up to 80 of the profits, like a typical syndication. It really depends. If you're raising money for more than one person, then you are syndicating the funds and should get some SEC exemption.

Start drafting a private placement memorandum and then get a sense for what the investors would be willing to want in exchange for providing the funds on the deal. Also, the risk profile of the deal will come into play. There was a post on here about Brandon Turner losing $15 million, and those investors got completely wiped. If you're taking  75% bank debt and putting investors in a position where they could get wiped, of course that's more risk, so they want a greater return. If there is no debt in a deal, investors might be willing to accept less because it is perceived as lower risk.

Jay Hinrichs · Answer

I personally cant see how anyone investor or ground partner would do this for SFR type investments unless they could scale to 20 to 30 or more homes.. to do this for one or a handful etc.. there simply is not enough money to be made to make it worth it for either party.
Not to mention potential conflicts etc.. you mention Brandon look how scaling these investments has really cratered his reputation that was once stellar.

So for the agent do it for a fee For the investor you don't need minor partners just hire good realtor to find and maybe manage rehab then good PM keep control do NOT give up control if your the one getting the loan and at risk with your credit etc. IMHO

Garrett Crosby · Answer

Good question and honestly one of the most common sources of partnership tension I see. The answer really depends on the deal structure and how you want the relationship to feel long-term.

If the silent partner is purely providing capital and nothing else, I'd lean toward treating it more like a debt arrangement — pay them a fixed return or preferred return (say 6-8%) and keep the equity yourself. You're doing all the work, finding the deal, managing the rehab, handling everything operationally. That has real value.

If they insist on equity, then a 70/30 or 80/20 split (you taking the larger share) is pretty standard for the scenario you described. The person who sources, manages, and executes generally commands the majority stake. If they're contributing 100% of the funds though, you may need to negotiate more toward 50/50 — just depends on how competitive the terms need to be to attract the capital.

Either way, get it in writing before you start — most partnership disputes come from agreements that felt obvious at the beginning but weren't documented. Happy to chat through structuring if you want to DM.

John Stallings · Answer

I will say 50/50 split for partners.

What is a fair partnership split

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