STR Partnership Structure and Agreement

[David VanWert]

Just recently launched our first STR 3-4 months ago and so far so good. I have been approached by an LP investor that would like to partner with us to scale to additional 10-15 STR's in various cities.

In short, we would split initial rehab/furnishing costs and down payments and both be equal equity partners. We would provide all of the day to day communication with guests, marketing, hire the team in each city etc... 

What would be a fair profit split?  60/40 as we will be managing? More? 50/50? Other thoughts or advice?

Looking for a bit of advice for others whom have developed similar partnerships with others. 

Also any agreement templates we can start out with to tailor to our needs? Would love to have a template to start wit tho have an attorney review. 

TIA!

[Nathan Gesner]

If you do all the work and they put in all the capital, 50/50 seems fair or maybe even skewed to them a little more because they have all the financial risk.

If you are putting in the work AND putting in capital, I would start skewing it to your favor. Whomever is doing the work needs to be fairly compensated for their time depending on the work they are doing. Swinging a hammer? $40 an hour. Finding the deal, getting it under contract, negotiations, inspections, and closing? 2% of the sales price. Property management? 10% of rent income collected. To make a long story short, there are different rates based on the type of work performed and the person doing the work should receive that compensation, at a minimum. You may consider paying yourself for the work done, as it is done, and then splitting the cash flow and/or profit when you sell.

As for capital, if someone puts money into the deal, their money should make a specific % return. On a syndication, they may offer a minimum 8% return on cash invested. If the property sells for a 20% profit, the investor gets their 8% back and the remaining 12% is split between the deal maker and the investors. 

There are a lot of ways to go about it. You may want to consider reading a book on syndication to get an idea of how they structure fees and determine who gets what.