Rental Partnership Structure Questions

3 Replies

I've tried to search BP forums about partnerships and although I've come across a lot of valuable information, I've yet to find my specific situation discussed. 

Basics of the partnership:

- All the properties will be in my name (I have the high credit & W2 income)

- I will be investing $25-50k per year of my own funds into the business to buy more property

- My father is in an all cash business so the idea is he will be getting his money in via renovations and ongoing maintenance/CapEx

- I will be responsible for all the "white collar" tasks and hold ultimate decision making ability as everything is in my name

- He will be responsible for "blue collar" tasks; finding properties, coordinating with contractors, etc..

Our goal is to build cashflow for a 10 year period before we would every need to start "taking" the cash flow out of the business. We're hoping to accumulate $150-200k in annual cashflow by that time. 

My questions revolve around how to structure the equity & profit splits so that it's fair for what we're going to be doing. Without a lot of experience, I'm not sure what the time commitment is going to be and what the value that we are bringing to the relationship is worth. Then there's the family piece of it and the last thing I want to do is go into this thing without clear roles/responsibilities and it ends up damaging our relationship.

With him being in a all cash business, it creates a unique situation where he will be getting is money into the deal by raising the value of the property and paying for everything but the down payments. This will keep our seasoned cash on hand at a maximum for future deals. He doesn't bring any handyman type of contractor experience but he will be able to find and work with the contractors and ensure the property is managed. I will still be responsible to oversee everything, keep us in compliance, handle the financing, contracting, and overall business plan. 

Assuming we can get our "cash in" to be pretty equal (me on down payments, him on reno/maintenance/cap ex) - is a 51/49 split fair based on the time commitment that we're going to be putting in? Is my assumption of cash in balance realistic or will I end up getting more in with down payments? 

Obviously I will need to decide what I think is fair at the end of the day but not knowing what our time commitments are going to be is making it hard. 

Any insight/advice is much appreciated! 



I always divide a partnership into 2 pies. 1) project management 2) capital

Project management is usually one guy who runs the show. In your particular case you and your dad have your own set of responsibilities. Its you to determine who has a larger load and to be compensated accordingly. 

A very common project management fee would be 20% and this will a lot depend on the scope of the project and the net returns. So 20% of the profits for project management and 80% towards capital investors.

Now you said 51/49% and for example you and your dad contribute equal amount of capital. Using my common 20/80% if can be broken down further as  11/9% for project management and 40/40% on the capital.. 

If the capital is not evenly distributed then you can obviously adjust the 40/40 accordingly. 

These numbers can always change just as long as both of you make adjustments and update operating agreement. It would be much easier to stick with the % of capital contributions in the beginning to avoid confusion and conflict.. 

Hope I explained this clear.. 

Originally posted by @Hai Loc :

I always divide a partnership into 2 pies. 1) project management 2) capital

Project management is usually one guy who runs the show. In your particular case you and your dad have your own set of responsibilities. Its you to determine who has a larger load and to be compensated accordingly. 

A very common project management fee would be 20% and this will a lot depend on the scope of the project and the net returns. So 20% of the profits for project management and 80% towards capital investors.

Now you said 51/49% and for example you and your dad contribute equal amount of capital. Using my common 20/80% if can be broken down further as  11/9% for project management and 40/40% on the capital.. 

If the capital is not evenly distributed then you can obviously adjust the 40/40 accordingly. 

These numbers can always change just as long as both of you make adjustments and update operating agreement. It would be much easier to stick with the % of capital contributions in the beginning to avoid confusion and conflict.. 

Hope I explained this clear.. 

 This helps Hai - thank you! 

To your point, I think the best strategy is to keep the capital contributions as equal as we can. It has the added benefit of improving the speed at which we can accumulate properties too since we're adding value.  

It seems like @Hai Loc has it down perfectly. I am around partnership agreements where all else is equal, but the "managing partner" holds an extra 10%. If you and your father plan on matching capital, but he intends to do the work, maybe 45-55 split is in order. But, if you are bringing the only capital, I think Hai said it best.