I would like some advice on a fair way to structure a partnership with the following deal:
Myself and a partner investor each provide 50% of the down payment. I found the deal, and I will be doing the rehab (hiring contractors, some DIY, and act as overall project manager). My partner is merely putting up 50% and acting as a silent partner. I find it hard to believe that this should be a 50/50 split due to my time/ effort throughout the project. The goal is to do a BRRR. Cash-out refinance w/n a yr.
I strongly advise against this partnership. Why? Your words: "merely putting up 50%" and "I find it hard to believe". Those make the think your partner is asking for 50% of the net profit and you don't want to give that. This is not a good start, and partnerships often get worse over the course of a project.
If you do proceed with this partnership, you and the partner should sit down and WRITE DOWN how you are going to do this project and what will happen in various circumstances. This sounds like a rehab. You talk about down payment, but where's the rehab money coming from? What if you have a big unexpected expense? This WILL happen. What if one of you dies, loses a lawsuit, get divorced, gets married, etc., etc., etc. What if you need more money and one of you cannot come up with their share? If you cannot discuss and agree upon these and many other factors up front, you sure won't be able to do it if the problem hits.
Who is going to be on the loan?
It would be much better to structure this as a loan, provided your first position lender would agree. Or, as a personal loan. Your partner loans you money for a specific return in a specific time. You take things from there. You pay them the specific return and pocket whatever you make over that. Or bear the loss if it doesn't work out.
A way to put a value on your time is to agree upon an hourly rate and what counts as time toward the project. Then you track your time. At the end, add up your hours and add the total to your cash contribution.
I understand why you interpreted it the way you did with the language used. To clear things up: We have not spoken about % splits yet, I pitched the deal and I have an interested investor. I have done rehabs before and have experience. I'm trying to get ideas to pitch that would be a fair split with the circumstances of 1 active/ 1 silent partner with 50/50 $ down. All expenses for rehab would be split down the middle. We both make a comfortable living and have enough to cover expenses as they come up. Plus the loan will have about 35k for rehab initially. I guess my question is: would it be fair to just say 55% & 45% split for my time & finder fee (or something similar)? Or is this a bad suggestion? I'm not at all wanting to be greedy, but I do believe those who put in more labor deserve a larger slice of the pie. Thanks for your reply. All advice is welcome.
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