Structuring a partnership deal
Hi all,
Just curious on how you'd structure a deal with a partner with the following information. I'm going to bring about 30k to put towards downpayment and closing costs of the purchase and the property will be in my name as a second home. My partner will bring about 50k for rehab and furnishing.
Here's what I'm thinking. Since I'm managing the property, I'll take 15% off the top of all bookings similar to a management company. Then my partner and I will split the remaining profits based on the percentage of the money we brought.
Does that sound like a good deal for everyone? Thanks for your feedback!
That sounds like a good structure to me. As long as all the partners are happy I think it that is the only pre-requisite for a good partnership structure.
That sounds reasonable. Alternatively you could go 50/50. This would make sense since your cash is less but your day to day is more. Maybe run a scenario to see what’s the best option for you.
Quote from @Jonathan Ruths:
It sounds OK on the surface. My preference would be to split all profit based on the percentage of money invested, but then pay each partner separately for work done. You get a management fee. If he does repairs, he gets paid hourly for his labor. I think it's cleaner that way.
Don't forget to negotiate an exit strategy in case one or both partners want to leave.
#1 Short-Term & Vacation Rental Discussions Contributor
- Investor
- Greer, SC
- 13,441
- Votes |
- 11,417
- Posts
#1 Short-Term & Vacation Rental Discussions Contributor
- Investor
- Greer, SC
Your proposal sounds reasonable to me.
Quote from @Nathan Gesner:My partner is acting as a silent investor. We'll have a cleaner and handyman take care of the property. Do you have an example of what a standard exit strategy might be?
Quote from @Jonathan Ruths:
It sounds OK on the surface. My preference would be to split all profit based on the percentage of money invested, but then pay each partner separately for work done. You get a management fee. If he does repairs, he gets paid hourly for his labor. I think it's cleaner that way.
Don't forget to negotiate an exit strategy in case one or both partners want to leave.
Quote from @Jonathan Ruths:
Consult an attorney for development. Partners should consider if they plan to hold the property forever, or for a set period of time. I personally recommend a short term, like 3-5 years, where partners are required to review performance and vote to keep the property or sell and split. This gives everyone a way out.
What if one partner wants to cash out because they need the money? Allow them a way to sell their share to the other partner(s). This allows them to leave without requiring the other partner(s) to sell a deal that's performing well. What if the partner(s) can't buy the other out? Can they sell it to another person and bring them in as a partner? Do the remaining partners get to vote and approve/deny the new member?
That's just a few sips to wet your whistle. It's a lot to think about.
Sounds like a good split for what you're doing
Quote from @Nathan Gesner:
Quote from @Jonathan Ruths:
Consult an attorney for development. Partners should consider if they plan to hold the property forever, or for a set period of time. I personally recommend a short term, like 3-5 years, where partners are required to review performance and vote to keep the property or sell and split. This gives everyone a way out.
What if one partner wants to cash out because they need the money? Allow them a way to sell their share to the other partner(s). This allows them to leave without requiring the other partner(s) to sell a deal that's performing well. What if the partner(s) can't buy the other out? Can they sell it to another person and bring them in as a partner? Do the remaining partners get to vote and approve/deny the new member?
That's just a few sips to wet your whistle. It's a lot to think about.
Yeah, definitely a lot to think about. Thanks!
Yep agreed. Here is a blank JV agreement that might help you think through some things. I use this all the time on my flip partnering. https://docs.google.com/docume...
Of course use at your own risk and consult with attorney but this document should be helpful.
How would the reporting of taxes be considered? Do both parties need to be on the deed or will the cpa then create K1s for any profit or loss based on the operating agreement? Appreciate any insight.
Quote from @Crystal Ribail:
How would the reporting of taxes be considered? Do both parties need to be on the deed or will the cpa then create K1s for any profit or loss based on the operating agreement? Appreciate any insight.
Title of the property will be held in the name of the entity.
There is a partnership return where there will be K-1's given to each partner/member/investor
-
CPA
- Basit Siddiqi CPA, PLLC
- 917-280-8544
- http://www.basitsiddiqi.com
- [email protected]
Quote from @Basit Siddiqi:
Quote from @Crystal Ribail:
How would the reporting of taxes be considered? Do both parties need to be on the deed or will the cpa then create K1s for any profit or loss based on the operating agreement? Appreciate any insight.
Title of the property will be held in the name of the entity.
There is a partnership return where there will be K-1's given to each partner/member/investor
Thank you for the response. In my case the title is under my individual LLC. Would there be any way to change just the title and not the loan to the partnership entity without a refinance? Would this be considered a subject to situation?