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Alex Bargar
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Structuring a partnership with equal capital but unequal labor?

Alex Bargar
Posted Jun 12 2021, 14:11

Hi BP community,

New investor looking for some help creatively structuring a partnership. I'm looking at making a purchase with a long time friend. We'd each contribute equal capital into the partnership, but our competitive advantage is that he'll live near our properties, is an extremely skilled contractor, and can thus manage and repair/improve our properties more affordably. I'll be in charge of all of the cash management and other administrative matters related to our partnership; this will obviously require less ongoing time than his commitment.

We're trying to think through how to fairly structure a partnership that reflects that he'll be committing more time to maintain our partnership than I will. So far a few possibilities come to mind, but I'm curious if y'all think I'm missing anything. My objective is for both parties to be treated fairly so that we can grow our partnership with mutual benefit for years to come.


Option 1: the 50/50 split
We can just decide to ignore the differential in hours required by each of us to keep up our properties and can split all returns down the middle

Option 2: billing the partnership for his labor
We can determine a reasonable market rate for his labor beyond a certain number of hours per month, and can bill the partnership for his time. This way we're effectively each covering 50% of the cost of his time

Option 3: the uneven split
We can figure out another split of ownership that makes sense for both of us to be happy despite the fact that we'll contribute equal capital to our deals. I'm not sure of a reasonable way to land on a number here


Curious if any of you think I can think more outside the box?

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