Money Partner Arrangement

[Mark Tanner]

If I were to partner with someone on a cash buy of a rental property, and they provided all the up front capital (purchase price and renovation), I did all the work (finding, managing, etc.), and they wanted to participate in the equity and cash flows, what would be an appropriate split?

I ask because @Brandon Turner has talked about doing a 50/50 split when the money partner pays only the down payment and puts the mortgage in his/her name. If the money partner pays 100% on a cash buy, should they get more than 50%? 70/30?

Or is there another arrangement that would be better than a split?

Thanks!

Mark

[Roy N.]

Rule 1:  Treat your money partner like gold ('cause they are)!

Rule 2: Re-read Rule 1.

If you will be acting as PM/GC on the rehab and then managing the property as a rental, I would treat them separately.

On the purchase and rehab, you should be able to justify an 20% stake (perhaps 30%) if you are actively the GC.  If you are simply contracting a GC, then your value add is considerably less.

Once the property goes into service, if you are going to be the PM - find, screen, place, & manage tenants -  then 10% of effective gross revenue would be fair on a single small property.   Of course, you would plough this back into increasing your equity share.

Additionally, your "golden" partner would get all of the cash-flow until a predetermined amount of his upfront capital (plus interest) had been returned.

You should be able to plot things out such that 3-5 years down the road you are 50/50 partners.