How to Structure a Partnership

3 Replies

I'm planning on buying a couple of houses to fix and rent.  I would like to bring on an investor who is a good friend of mine to handle the cash portion of the transaction while I manage the flip and tenants in the future. After the fix I plan to refi to get as much cash back as possible.

My question is, what is a fair set up for this type of partnership? My goal with these is long term passive income, so I want as much of the future rents as possible. I'd like to get him in and out of each deal as quickly as possible.  Any thoughts? 

If your friend is supplying money only you may not need a partnership at all.  Your friend can simply lend money to you (or your company) secured by a mortgage on the property.  You simply need to come up with terms and an interest rate which works for both of you.  Getting him out of the deal is then easy.  You simply pay off the loan and he releases his lien.

@Jeff Rabinowitz  That's a good point. The simpler the better. What are standard terms for hard money loans like that? I think I've heard 12% kicked around. What about timeline? Is it all due after a year usually? 

There is no such thing as standard terms.  The interest rate can be anything you agree on as can the duration of the loan.  Of course, you might agree that there is no prepayment penalty so that you could pay the loan off whenever it is convenient. 

Get the Ultimate Beginner's Guide

Sign up today to receive the popular eBook for free!