How do you structure your business with your patners?

Question

How do you set up your business when multiple partners will be doing different things and providing resources? Example: Partners 1&2 have funding and will be hands on when rehabbing. Partner 3 does not have funding and will not be hands on during rehabbing, but will be responsible for marketing/finding deals.

It's clear that a 1/3, 1/3, 1/3 split wouldn't be fair, so what would? Do you split using different percentages? What has worked for you?

It's clear that a 1/3, 1/3, 1/3 split wouldn't be fair, so what would?  Do you split using different percentages?  What has worked for you?

Omar Khan · Answer

@Eric Armstrong Each case is different because each set of partners has a different understanding of what fair means. For instance, if Partner 1&2 are newbie investors but can not find deals, then Partner 3 will be in a position to demand better terms because s/he is teaching them the ropes and introducing them to a network, or vice-versa.

Furthermore, depending on the nature of the property/market, any one of the roles - financing, rehabbing or marketing - could be significantly tougher than the others. For instance, in a recession, no matter how good finance or rehab you have, marketing a property will be tough. Hence, in those situations Partner 3 might be in a better position to get more than 1/3 of the share.

Also, whereas real estate is a very capital intensive game, capital, by definition, is a commodity. Knowledge is the real key. Plus, everything boils down to how one negotiates.