Investor · FL · Member since 2015 · 103 posts · 10 votes
Hey BP,
I have an interesting situation in where the partner for my last deal (strictly an investor) wants to become more active in the following deals. In our current deal he receives an 8% preferred return and the additional cashflow is split 50/50 between us.
In follow deals he has stated that he has his own investors that want to contribute money and he would like to become more active a deal with me in basically a 50/50 split. The thing that worries me is that one of us is going to end up doing all the work or the deal with become complicated with both us juggling different things and always requiring something from the other person.
My question is how can we utilize his investors funds while also keeping him in the deal. My role is clear...Acquisition, management and everything in between. What kind of split setup could work in this scenario?
I never go into any partnership where there is, or might be, a redundancy in roles and responsibilities. I would tell him he must form a partnership between him and the other cash investors he has, and that new partnership becomes the partner in the next deal(s).
Don't add on any partners with split roles.
If he wants to take on a more active role, and he is also bringing in the money, then why does he need you? The answer is this way he can get a higher return. The problem is, if you've already established a relationship where you are already doing what he wants to start doing, at some point you will become the "fall back" (because he knows you can do it), and eventually you will find yourself paying him to do what you've been doing all along...but was supposed to have been assigned to him.
There are only three reasons to form a partnership:
1 - Your partner does what you can't do.
2 - Your partner does what you don't want to do.
3 - Your partner does what you shouldn't do (just because you can, doesn't mean you should).
Don't form a partnership where there is an established redundancy. It's a path to trouble.