Got the team the money and the plan - what's the next step?

Question

It seems we got all that's needed to commence our short-term and vacation rental project.

The team:

1. Partner 1 - The Sponsor. Some money to invest, will oversee and lead the project

2. Partner 2 - The Money Man. Will provide the most funds, but also is willing to play some active role in the project.

3. Partner 3 - The Young. Bright, enthusiastic with no money, but eager, willing, and able. Will be "boots on the ground" , perform day to day operations, and handle hustle and bustle.

4. Partner 4 - The Realtor. Some money to invest, brought deals to the project. We plan to manage our properties ourself and also offer PM services to other owners. As he has the broker license, he is considered to head the property management operations.

We are ready to proceed to the next step. Any advice on how to structure a solid Operation Agreement to avoid issues as we go along?

Bruce Woodruff · Answer

My first thoughts are - too many partners. a) It will lead to too many opinions and possible arguments. b) the $$ split will be diluted.

Unless you are going to only focus on huge, big-money properties, like $1mil+

If you move forward, I would (as @John Underwood said), make sure that you have a solid and very specific agreement that shows in great detail exactly what the expectations and duties are for each partner. No overlap and no ability to share responsibilities. In my experience, the big money guy will want to start offering input on how the framers lay out the rooms, the color of the stucco, etc...then his ideas get rejected and it all starts to go downhill.....

Michael Baum · Answer

Count me the 3rd. Too many chefs in the kitchen IMHO.

You will need an absolutely rock solid agreement with everything that @John Underwood said and maybe more.

With this many people having a stake, you need to spell out each and every little thing to make sure that everything is well understood.

John Underwood · Answer

Are you paying all cash?

Create an operating agreement.  Define ownership percentages and responsibilities.

What happens if one person wants out? How will that work? Does it have to be a unanimous decision. Do the other partners have to vet a buyer of one partners position?

How would new acquisitions be handled?

Will there be any personal use allowed of the owners? How often? Any blacked out dates?

The roof needs to be replaced one day or the HVAC replaced. If you don't have funds for this who pays for the repair and how is that structured?

What happens if STRs become illegal in this area or something else prevent being able to use house as a STR? How would you pivot?

Think of every good or bad scenario and agree now in writing how to handle it.

One partner gets hit by a bus. How is his ownership handled?

The rental income isn’t what you hoped, how do you handle cash infusions to stay afloat?

Try and plan for every scenario now so its not a fight later.

Collin Hays · Answer

I would be real worried about the one running the operation who has no financial skin in the game. Those deals rarely have a happy ending.

Basit Siddiqi · Answer

You need 3 items for a successful partnership - Time, Money, Experience.It looks like you have all three - I am excited to hear how it goes for you guys!

Henry Clark · Answer

Key is to state it in the OP agreement.   Or all things are negotiable.  Would be the same concerns for taking in debt with a lender.  Also you need to understand personal guarantees by investor with the lender.   You want as few of these issues popping up

And not being addressed in the OP agreement.

Sameul Ahsan · Answer

I agree with one of the responses here that you have way too many partners and I don't think you have clearly defined the roles either- for example Partner 2 'willing to play some active role'.

For short-term rentals, the next steps typically would be:

• Drafting an Operating Agreement that clearly defines roles, equity splits, voting rights, profit distribution, and exit strategies.
• Establishing management processes: booking platforms, pricing strategy, and maintenance protocols.
• Setting up tax, legal, and insurance structures (LLC, bank accounts, property insurance, STR permits).
• Agreeing on decision-making authority: who approves expenses, hires vendors, or decides on new property acquisitions.

Drafting an Operating Agreement that clearly defines roles, equity splits, voting rights, profit distribution, and exit strategies.

Establishing management processes: booking platforms, pricing strategy, and maintenance protocols.

Setting up tax, legal, and insurance structures (LLC, bank accounts, property insurance, STR permits).

Agreeing on decision-making authority: who approves expenses, hires vendors, or decides on new property acquisitions.

A good operating agreement should include:

• Capital contributions and future funding obligations.
• Ownership percentages and profit distribution.
• Clear roles and responsibilities for each partner.
• Decision-making rules and tie-breakers.
• Exit strategy if someone wants to sell their share or if there’s a dispute.

Capital contributions and future funding obligations.

Ownership percentages and profit distribution.

Clear roles and responsibilities for each partner.

Decision-making rules and tie-breakers.

Exit strategy if someone wants to sell their share or if there’s a dispute.

Henry Clark · Answer

OP, I'll find our Operating agreement and post here.  But another post I did might be beneficial to you.  Multiply this thought across all of your LLC investors.  Your basically getting married to these investors.

So you just Died. The following are actions not to put your Family through Hxxx. (Also Vendors, Customers, Bankers, employees)

A. “Will” or “Trust”?- Do you want things to go through Probate for several months or seamlessly go through a Trust with no stoppage in operations or control? Without a business, you might not care if your below a certain Dollar level or asset types that don’t deteriorate. Various discussion points- Bucket Trust, rename all of your assets to include the Trust, etc, talk with your attorney.

B. Power of Attorney- you can have this made specific to different aspects of your life. You may have a business partner who you want to be able to make decisions on your behalf for the Storage business, but have no say over your Personal life.

C. Bank Accounts “POD”- Payable on death, so you just died and who is going to pay the bills? This will automatically allow a person to access the funds and support the ongoing business. You probably have you and your spouse on the account already, so put somebody that is likely not traveling or living with you, in case both spouses pass at the same time.

D. Life insurance- not tax-deductible, tax-free proceeds. This is more about risk, comfort zone, lack of knowledge and stage of investment. With our fast growth we have taken loans out. All of the location's cash flow very well, so there really is no risk from losing a “wage earner”. It is more about taking pressure off the family members who will end up with the property. Also to cover any estate taxes or debt restructuring if they arise.

Where the major danger comes in, is if you're in the middle of a development and you're the main developer. The other family members only know how to run an existing facility. This is where you can lose a lot of money, if you have to sell the property and not complete the build out.

We identified three areas of risk, and they are all on three different timetables. 1. Ongoing debt payments for existing units., 2. One location in Rent Up Phase., 3. One location in development phase and then Rent Up phase.

Per our advisor we took out three separate Term life policies. That way as the risk diminishes you can drop one policy at a time. If you had just one large policy covering all three risks, you would have to cancel a policy and renew. You have gotten older, any new health issues that arise, and the need to go through the review process again, may change your access and cost of an insurance renewal. Don’t get to exact figuring out your coverage needs, it is really cheap, go for the higher number.

E. Living Will; End of Life- This is more for applying medical treatment or not under certain circumstances to continue your life support, while you are incapacitated. Just added this so you have a complete package of estate issues. By this point you should not be in control of any business, unless you were incapacitated due to an accident or sudden medical issue.

F. Medical Power of Attorney- this allows someone to be in charge of your medical treatment if you're incapacitated. Not so much a business impact but wanted to keep the list complete.

Mike Grudzien · Answer

Too many partners, too complicated before you even start.

Henry Clark · Answer

OP.  You said you had the Plan?  That to me is your next step.  Bet your financial plan.  Stress test it.  Occupancy, capex, rent price, interest rate swings,  then action and funding plan.  Although this is not a syndication it is the same model.   Make sure everyone understands the business model.

Use the lookup.   I made a post on our Operating agreement.

Got the team the money and the plan - what's the next step?

Most Popular Reply