How have people structured partnerships?

Question

Hello everyone,

I have been doing some research into creative financing and specifically partnerships. I think they are one of a few options that really make sense for me and my goals. If you have had experience either on the capital side or management side of one of these deals and are willing to share what the terms were I would greatly appreciate it.

I am curious too if anyone who was on the management side of things added a buyout clause? I like the idea of me using other peoples money to buy properties, but I don't like the fact that in several scenarios I've seen the capital partner is a part of the deal until it is sold. I'd rather buy them out 3, 5, 10 years down the road so that I get full ownership and full profit.

Thanks!

Stuart Udis · Answer

The appropriate structure for a partnership depends heavily on the individuals involved, their respective skills and strengths, the asset class, the investment strategy and many other factors. It is important to understand each partner’s wants and needs and ensure that the partnership terms and overall strategy align with everyone’s objectives.

Regardless of how the partnership is structured, two ingredients are essential to its success: appropriate capitalization and adequate knowledge and expertise. No matter how strong the underlying real estate may be, it is extremely difficult for the partnership or the investment to perform well if either is missing. Undercapitalization creates pressure at every stage, while a lack of experience leads to avoidable mistakes, delays and unnecessary costs.

Garrett Keith · Answer

I am likely going to propose a partnership with my boss. He and I get along well and I knew him well before working with him. He is very reasonable and knows my family very well and vise versa. I am confident that he is a level headed individual. I would be the active partner, but I don't have a lot of experience. I have been learning and researching for a year or two now and have a good idea of what to expect and what I need to have set before investing in another property. You said you recommend at least some money in the deal for the active partner. Where do you recommend the active partner put that capital? And how much?