How Would You Structure This Partnership

2 Replies

There is an off market deal I have been working on for 2 years now. The owner is an older woman looking to move out of her inherited 3 family home in order to move into a condo of some sort that will require no house maintenance/yard work. She is now ready to pull the trigger.

My older brother is looking to share in some of the success I've had using the BRRRR method. He asked if I know of any upcoming deals and if I would be interested in a partnership. I told him about the one I've been working on for 2 years.

I would  bring to the table: the deal, the market/real estate knowledge, the real estate attorney, the mortgage broker/bank. I will also be responsible for the property management and the snow removal/yard work. I will bring in the contractors and manage the renovation.

He will bring the 20% down payment, take out the mortgage for the remaining 80% and fund the renovation.

Assuming my brother is someone I would like to partner with, how would you structure the partnership?

Talk with your brother.  If he's going to be your partner, what does he feel is fair for bringing the cash to make the deal work?  Haggle back and forth until you each get something that you both find is acceptable.

There's no "right way" to do it.  Either you work together and the deal gets done or you don't and it won't.  I wouldn't pay much over bank rate for the money....otherwise you might as well just go to a bank.   I assume he's going to have a share of ownership, so his money will be protected via his legal title to the property.

Be careful...spell everything out on paper.  Rolls, responsibilities, timelines, and exit strategies.  Every partnership agreement should include the "Five Ds" (Death, Disability, Divorce, Disinterest, Disputes).  Planning what to do in advance of these issues can spell success or failure for a partnership.  The 6th & 7th "Ds" (Drugs & Drinking) might also be useful...although of course no one is going to admit up front that would ever be a problem, it's worth putting it in there.  

I'd also add "Dissolution"...what happens if one party wants out but the other isn't in a good position to Exit?  So now you have 8 D's.  Lots to think about when creating a partnership.  If your partnership agreement isn't at least as long as your rental lease, something is wrong.

Good luck!

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