Any tips on structuring 2-4 unit, residential, buy-and-hold/BRRRR deals with out-of-state, silent partners who are close friends/family?
I'm thinking about structuring a deal where I handle day-to-day renovations and landlord responsibilities but use cash from partners for a portion (or all) of the downpayment.
Still in the exploration phase and would love to hear from folks who have done this. If you're not a fan of the idea, let me know the pros and cons.
For a similar idea a local guy @Joshua Christensen
Recommended laying out the percentage everything was worth in the beginning and making sure everyone is in agreement.
Property management $$%
Project management (construction phase) $$%
Funding $$% sub category to funding % per participant.
He also recommended structuring each deal individually, and making sure everyone is still in agreement.
When partnering with anyone, but especially family & friends, you want everything in writing. Otherwise, you may not be welcome at family events!
Too many investors want to partner with “handshake agreements”, which they would never do with a tenant or property management company.
Things to think about:
1) What happens if one of you is suddenly incapacitated or dies? Do the surviving partners get that investors shares or do they have to deal with relatives that may be ignorant and/or greedy?
2) What happens if one of the partners wants to terminate the business relationship and wants their investment out now?
3) What happens if one of you drinks & drives, killing someone and getting sued by the victim's family? How would the other partner(s) be protected from that?
So, why wouldn't you want to hire an attorney to create a partnership agreement and perhaps an LLC to cover as much of the above as possible?