Deal structure with Friends - Initial Investment Question

[Account Closed]

Hi Everyone,

I've read countless threads on deal structuring and how it's an artform, not a science.  That being said, I wanted to inquire with BP for advice on our specific situation. 

We are investing with a partner who is going to be putting up the down payment and rehab costs for conventional loan. The properties will be held in joint LLC. The partners are based on the west coast but will be investing alongside us in our 'farm' on the East Coast. We will be 'boots on the ground' and will handle property management and all the other fun stuff that goes with locating and closing a good deal.

Let's say we decide to split 50/50 for all profits and cashflow.  10 years down the road the partners want to sell and we agree.  Does the partner typically get 100% of their initial cash investment back before the profits are split 50/50?

[Andrew Postell]

@Account Closed generally speaking a 50/50 split means that everything is split 50/50, debts, cash, assets, etc.  It sounds like your "50%" will be work and the other parties "50%" will be money.  And this is a somewhat normal structure to a business of this type.  In 10 years when you sell, you should get 50% of the cash available at that time and so would the partner.  So if you and your partner want to structure it differently it should certainly be put in writing so that both parties know what to expect.  Hope this helps.