Rental Property Investor · Philadelphia, PA-Pennsylvania · Member since 2016 · 44 posts · 2 votes
I am in the process of coordinating partnership structuring for a BRRR deal. I have a potential capital investor who is open to financing acquisition & rehab costs. I would be the general partner responsible for property acquisition, rehab management, tenant placement and property refinance.
To keep the partnership simple my proposition is to create a 50/50 equity LP in which the capital partner gets a 100% return of capital upon refinance and remaining capital left over is split 50/50 between both partners. Additionally, I would like to build in an 8% construction management fee at refi closing.
Does this seem like a simple and fair partnership structure?
I am in the process of coordinating partnership structuring for a BRRR deal. I have a potential capital investor who is open to financing acquisition & rehab costs. I would be the general partner responsible for property acquisition, rehab management, tenant placement and property refinance.
To keep the partnership simple my proposition is to create a 50/50 equity LP in which the capital partner gets a 100% return of capital upon refinance and remaining capital left over is split 50/50 between both partners. Additionally, I would like to build in an 8% construction management fee at refi closing.
Does this seem like a simple and fair partnership structure?
Thank you!
Dave, sounds fair. You can do it with an LLC where you're the managing member and the silent capital partner will be a member. It's almost the same as an LP except that your liability is not unlimited unlike being a GP in an LP. Now having said that, I am not an attorney so check with your attorney in your state.
Also, you need to put in an agreement as to what happens if you can't refinance all the money out. Also, how do you split the monthly cashflow, specially if you can't refi all the money out?
I suppose when you said you're responsible for the refinance is that the mortgage will solely be in your name, correct? If so, you might encounter a problem if the property is titled in the name of the LP because residential mortgage lenders will lend to a person not an entity. A way around that is to borrow money from a commercial mortgage lender but the interest rate will be higher.
You set up the question as if there are you and 1 cash (passive) investor. Fine for a question.
Legally, there could be a problem if you have more than 1 passive investor. Not my exact area of expertise. Just highlighting because it feels normal to bring in a third person if a bit more cash is needed and everyone is happy with each other.
@John Corey- Thank you for your input, John. I don't expect to have any legality issues as the partnership would just be me and my capital partner.
@Michael Ealy- all really helpful points to consider, Michael! I've contacted my attorney about structuring the entity further, but thought it would be helpful to get input from those who may have done something similar before. And with the refinance it would likely be in my name so I will look into that further with some local banks as well. Thanks again!