Advice Needed: Investor & Contractor Buy/Hold Partnership

[Atul Kaushal]

Dear BP Members & Mentors, I’ve been in the business a couple of years and have been fortunate (along with some hard work) to pull together a small portfolio of buy & hold properties. In the process I ran into some shady contractors and some good ones. I believe I finally found one who does good work, on time, and on budget. I’d like to explore business models where we can leverage each other’s strengths and skills. I can find and buy properties that are suitable for BRRRR, and he can fix them up. What are possible ways of setting up this arrangement so we both have equity / ownership in the portfolio we build together? Only thing I can think of is we look at cost of initial investment (my part) and cost of rehab (his part) and split the equity in that ratio? Once we figure out the arrangement, what legal structure would be best? Would be grateful for your insights. Many Thanks, AK

[Eamonn McElroy]

@Atul Kaushal

Generally an LLC taxed as a partnership for long-term rental real estate with multiple equity partners.

There should be a strong operating agreement in place to get everyone on the same page.

Everything is open to negotiation.  A waterfall schedule for allocation may make sense.  Distributions can be structured so that you recoup your capital investment first before "profit" distributions occur.

You need to structure the agreement to incentivize your contractor partner to keep costs low and complete work on time.

Consult both your attorney and your tax CPA/EA.