Looking for some advice. My brothers in law and I are venturing into the possibility of buying a MFH and becoming landlords. I'm looking for advice on how to possibly design our deal.
I've been investing in real estate the past year, mostly in SFH and hard money lending. All units are occupied and cash flow positive. I currently have an LLC for my property business and am working toward my license. The property will be deeded into the LLC. I will contribute 25% of the down payment.
Brother in law A is a lawyer who will contribute his legal knowledge and 25% of the DP.
Brother in law B is handy with maintenance and will also contribute 25% of the DP.
Partner C is a cash/silent partner who will contribute 25% of the DP.
Here are some questions:
1) Considering I will primarily do a majority of the work with this property, how much more, if any, of the profits am I entitled to?
2) Do factor in the same % for vacancy, maintenance, etc. as you would a SFH?
3) If we decide to liquidate the house in 15 years, am I entitled to more of than 1/4 of the profit?
4) Do I charge a monthly/yearly fee for my work?
Any feedback is appreciated.
I'd be very cautious about inventing with family and friends. These things have a tendency to implode and change your family and friend relationships. Want to lose a friend get in business with them.
If everybody puts in 25%, and I was in that partnership, I'd want 25% share of income and capital gains.
And work on the properties should be hired out not done by a partner like your slef.
Why do you need the partners?
And you should have an iron clad partnership agreement drafted by an attorney, that details all aspects, like how does a partner get out, what happens if a partner dies, goes bankrupt, goes to jail, gets divorced, etc. Those BILs could end up out of your family for reasons that have nothing to do with the real estate.
Partnerships can be complicated. And while I have some, but limited, experience in this (3 partnerships on different deals), I recommend spelling out what your expectations for your partnership are, before you purchase the property. As I see it currently, based upon your summary, I think the expectation of the other parties will be, if they are contributing 25% of the equity, then they are entitled to 25% of the Net from the sale, unless otherwise discussed and agreed upon amongst the partners. This is why it is so important to put together a partnership agreement upfront, that clearly spells everyone's role and how the proceeds are split at the end. It is also important to have a strategy for the situation where someone wants out and how your group will, either buy them out or.....
From your perspective, If you feel you are going to be doing most of the handy work and rehab work to the property, you might offer less of the down payment but contribute more through sweat equity. However, The trouble can be quantifying that % before you have owned the property, especially if you don't know how long you will own it.
Another idea would be to either take a property management fee or maintenance fee that comes directly from the proceeds. This would compensate you for your annual labor while keeping an even share for the inevitable sale.
This all comes back to how you define the partnership before you buy the property, Make sure everyone is in complete agreement and you will be successful in your investment. If it isn't spelled out before it will be challenging throughout the entire ownership. I hope this somewhat helpful
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