Dividing profits with a partner

[Antonio Coa]

Hi everyone, I’m planning to partner with a friend to buy a duplex where he is planning to use his credit and I’m planning to put the downpayment for the property. We are planning to split profits 50/50. However, as far as the downpayment, I would also like to get 50% of the downpayment back. What is the standard structute to have my partner pay back the 50% of the downpayment? I was thinking either monthly payments through rental cashflow or at time of sale in the future? What do you recommend?

[Ashish Acharya]

Originally posted by @Antonio Coa:

Hi everyone,

I’m planning to partner with a friend to buy a duplex where he is planning to use his credit and I’m planning to put the downpayment for the property. We are planning to split profits 50/50. However, as far as the downpayment, I would also like to get 50% of the downpayment back.

What is the standard structute to have my partner pay back the 50% of the downpayment? I was thinking either monthly payments through rental cashflow or at time of sale in the future? What do you recommend?

 It was fairly easy before tax reform. The partnership would pay you a Guaranteed Payment for the use of your capital up to certain amount.

However, the GP are not included, does not qualify, in the  new 20% deductions  that you might be entitled to. So now the partnership have incentive to not pay partners via GP. If you want the benefit of not paying 20% tax on the money that partnership would pay you back, you have have to specially allocate rental income or set up the preferred return to meet your desired income that incorporates your repayment of down payment.

I am sorry that new law made it more complicated. You might have to get partnership agreement drafted by an attorney.