I am partnering up with someone on a 4plex. They are supplying the down payment and I am handling everything else. What would be the best way to structure the partnership? I was thinking split cashflow, split equity after the equity gained from the down payment, split maintenance costs... what are some of the better ways to go about this?
Whenever someone wants to partner with me I offer them a similar deal. If you can keep the cash flow it generates within the business then I would not worry about the splitting of maintenance costs or other costs. Depending on how good the deal is and how good the partner is I would maybe do something like you manage it for free to earn a portion of the downpayment back for the partner but I would want an exit strategy outlined in the deal so you do not manage it forever if you do not want to.
Hey Joe, every situation is different, and I think this will all depend if the agreement is worth it to both of you. If one of you feels that the other is getting a better end of the deal it usually can cause conflict. I think your best strategy is to write everything out on who will be doing what when a situation occurs. Who will be doing the labor when it comes to maintenance? Who will keep up with the books? who will market and do showings to get tenants? I think a 50/50 split is usually a good deal as long as both of you are in agreement on who does what, and that what you both are taking on is reasonable. Also, what's the plan if one of you decides to liquidate, and the other doesn't want to. If you both understand this on the front end, it will help easily resolve any type of confusion or conflict. That's awesome that you've got a 4plex. Keep going, and best of luck to you Joe. I hope this was helpful.
Hi, #1 fannie lenders (banks) will not give you a loan unless the down is 100% yours, been in YOUR bank account for 2 mo.
Okok not all is lost; Commercial 30yr lenders called many things; DSCR lenders (lends on the rent), portfolio lenders (a broad term today), but mainly DSCR lenders. Join your local REIA and ask for referals for commercial 30 yr rental lenders. Some credit unions do these, Lima One, Finance of America. These guys are more open, you may need the down in your bank account just today, not 2 mo.
IMHO, having done JVs, and advised others; debt relationship is simplest. Offer 8% and payback at some amortizing that you still cash flow on top of paying the note on the purchase money.
JVs get into all sorts of tangles trying to offer equity, cash flow blabla, what about tax advantages? The LLC operating agreement gets to be a mess, needs an attorney to write. OR you secure the lender with a 2nd mortgage. BTW a Security deed can capture anything not just debt, it can describe any relationship.
The _best_ JV partner is;;;; no partner. Try to figure out how to do this deal without a partner. You will find out,, JV/partners are alot of pain in the butt and everyone including myself ends up being sorry having done them. But good luck.
Like others mentioned, you can work w/ commercial or non-bank lenders for a loan even if someone else is supplying the downpayment capital, but the best way to make this happen is by investing through an entity, like an LLC. The capital providers will need to be OK w/ giving a personal guaranty @ closing (and having their credit pulled during underwriting). If that's acceptable, then doing an LLC with a robust operating agreement laying out the material terms of the partnership will be a good way to go about it -- an experienced corporate/RE attorney should be able to draft this for you.
Probably best way to approach is how it looks: they are just another lender to you. I assume the amoutn of the money down is a minority share. So, no good reason to split everything. Also, will their name be on the Title? It doesn't sound like it. This in an investment, so its about "risk" and "reward."
Anyway, ultimately its whatever you find fair. I think for some people works. However, those that I speak with come to their own realization how its really not fair (to you).