Partnership Structure: How to split returns (losses)?

2 Replies

Hello all! I searched the forums but did not find very clear answers on how to structure a partnership. In this stage of my investing career (just starting!) I have time, but little to no money. Ideally, I would find a partner to fund the deal. 

If my partner is funding 100% of the deal (down payment + rehab) and I am doing 100% of the work, any ideas on how to split the returns? My instinct tells me 50/50, or I have heard to use "preferred return" method and pay the person funding the deal first. 

Any advice, experiences, or ideas are much appreciated.

Cheers,

Levi

This is more about what you can convince your investor to value your time at.  You should cut the best deal you can.  Its a sales job.  I go to investors and tell them what I am offering on a particular deal and because I have done that before I probably get a better deal than other people such as yourself who is just starting out.  50/50 would be great but I think it might be hard to find someone who would agree to give up that much unless you have already locked up a great deal that is sure to give then a great return.

Sorry I cant be more specific but this question is hard to answer with out knowing the deal and your relationship with your potential partner. I think you need to push for as much as you can but you also need to propose loose terms and be ready to negotiate.  It might be that you need a lower % but get paid some hourly rate for your time, or it might be that you get a higher % and pay some preferred interest to the investor.  

I have done deals where it was 50/50, 2/3,1/3,1/3,2/3 and also deals where the investor got 8% on his/her money and i got 75% or more of the profits after the preferred rate was paid but in all cases I tried to get as much as I could while still offering the money person a deal that gave them a really good return.  

Be flexible and creative and most importantly find a great deal so there's lots of money to split up

Jeffrey Holst, Real Estate Agent in Tennessee (#343371)

That’s really fantastic info, thank you! I will definitely keep flexibility and creativity in mind. Plenty of money to split is the name of the game!

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