How to structure a partnership for STR

6 Replies

Hi all. Looking to start in STR. I have a current real estate investor friend that is heavily invested in NYC LTR. I've been discussing the STR market, and he told me to come to him with a proposal as the potential COC is mind blowing for him. Is there a standard way that I should be structuring a partnership like this? Is it something like they put up the down payment and all cash flow goes to repay them, and then we split profit while I'm managing? Or do people do a split from the beginning, and eventually "buy" the equity partner out etc?

I don't know what I don't know, and I'm glad to receive any input.

You can do whatever makes sense to the two of you, that's the beauty of real estate investing deals.  :) 

It sounds like you want to invest time for money in the deal and he's the silent cash investor (so you would have a limited partner and managing partner situation)?  Generally on a first deal, the person putting in the money gets most of the benefit of the deal until you have proven that your 'time for money' is working and consistently dependable for the future deals.   So you could something like a simple 75/25 split on profits and if it works well you could go 50/50 on the next could certainly also try the deal structure you mentioned above as well, but it's going to require more tracking and management is all. 

Best of luck! 

@David Falk Partnerships are typically about understanding who has the time, capital and experience. Secondary considerations are what is your passion/purpose, tolerance for risk and location of investment. So what this means is, find out to which side of the scale you both align on those points. 

What matters most to this partner? Work on emphasizing that point in the contract

What matters most to you? Work on emphasizing that point in the contract.

@David Falk if I find a capital partner, my structure is as follows: capital investor signs for/buys the deal and I manage everything. All profit goes to the capital investor until they fully recoup their investment. After that, we split everything going forward 50/50. Equity and cash flow. I don’t need the money so don’t mind waiting to see a benefit. This prioritizes return of capital to your partner. You don’t make a nickel until they recoup their cash outlay. You get to trade their capital for your hustle. Just one deal structure among many!

@Brian Gerlach , i like the deal structure you have. Do you have this all written up in some partnership agreement? and how do you make sure it becomes 50/50? like do you have to get your name onto the title? Would appreciate any insights you have as i'm starting to consider investing in STRs with a friend/investor.

@Marcus B Hsu yes definitely get things in writing, ie clarity is important. I have not done a partnership yet. But if I do have a capital partner in the future they would buy the deal and sign for the mortgage. If buying conventional they would add me to title after closing or perhaps at a future date once investor recoups their capital. All this would be written out in the agreement. If purchasing in an LLC the capital partner would fund the LLC and then we would buy. There would be a partnership agreement written up spelling out responsibilities, etc. I think it's doable for their to be one party that funds the LLC initially and another that manages everything and be 50/50 partners, or whatever split is agreed upon. Find a RE attorney to help you if/when you do partner. They can help you with all the details. Good luck!

@Brian Gerlach Thanks for the explanation. I did reach out to my attorney based on your suggestion, their recommendation was either setup a JV or an LLC. Since I'm in California and I would like to avoid paying the franchaise tax annually, I'll probably go for a JV.