Real Estate partnerships

2 Replies

We are planning on entering a partnership with someone we know and have a couple of questions regarding how best to construct a partnership. Both parties would want to have equal equity as they would both be contributing equal amounts of money, however if one party does more work, what is an equitable and fair way to represent this?
Eg; finding the property, arranging the financing, finding the contractor, arranging legal documents, sorting out zoning, general management etc
Although we had an initial idea that each item could increase the percentage return of each party (ie; if you find the property you would receive an extra 1.5% on the ROI) we are not sure what to value each potential item

Personally, I think it's difficult to quantify, and make less subjective, effort.  I think a better approach would be to divide up the responsibility of doing the work.  As long as the Operating Agreement gives some guidance on how to make decisions if there's a stalemate, then if someone needs to be replaced because of performance in an area the whomever needs to do that should get that percentage.  I'd consult with a good lawyer with experience in drafting Operating Agreements.  Good job for thinking of this now.  

Hi Darren,

One possible way for cash flows for example: Both investors get 12% APR return on their investment, once that is satisfied the working investor gets the rest (or 70% of the rest, or etc...) If the 12% APR is not hit, then it's just 50/50.

There are tons of ways to do this, but this way kind of lights a fire under the working partner to do his best.

Just my thoughts on this.

Good Luck!