Investor · San Francisco, CA · Member since 2015 · 302 posts · 206 votes
Question about how best to structure this deal. Im buying a buy and hold strategy duplex for 200k using 30% down of my money on a loan in my name. I have a partner who's willing to put up the 25k in cash that it needs in work. He is simply putting in the money and Im literally doing everything else.
Curious if anyone has any thoughts on how to best structure the deal?
A split equaling the money we both put up doesn't seem fair because I did and am going to be doing everything else.
Lender · Ladera Ranch, CA · Member since 2015 · 21 posts · 10 votes
10y
I agree with Matt that you should try to negotiate a fixed cost/return (say 6% to 10% per annum) for the $25k (treat it as if it was a loan) because you are coming up with the $60k down payment plus closing costs, your partner is only putting up the $25k to rehab, and you are doing the work. I assume you will also be managing the rental, paying bills, handling leasing, making the loan payments, etc.
A typical partnership structure I've seen is when one partner puts up all the money and the other partner does all the work, they split profits equally. However, you would need something way more favorable since you are also putting up most of the money and are taking the risk with the loan since it's in your name.
Lender · Ladera Ranch, CA · Member since 2015 · 21 posts · 10 votes
10y
I agree with Matt that you should try to negotiate a fixed cost/return (say 6% to 10% per annum) for the $25k (treat it as if it was a loan) because you are coming up with the $60k down payment plus closing costs, your partner is only putting up the $25k to rehab, and you are doing the work. I assume you will also be managing the rental, paying bills, handling leasing, making the loan payments, etc.
A typical partnership structure I've seen is when one partner puts up all the money and the other partner does all the work, they split profits equally. However, you would need something way more favorable since you are also putting up most of the money and are taking the risk with the loan since it's in your name.
Wholesaler · Lynnwood, WA · Member since 2014 · 5 posts · 3 votes
10y
Of course he isn't interested in that! He would rather give you 25k and reap the long term rewards from your hard work. I would find another partner or keep negotiating.
Lender · Ladera Ranch, CA · Member since 2015 · 21 posts · 10 votes
10y
Time to move on and find another partner. Maybe ask a family member or friend. Lot's of people with some cash would love a 6%-10% return right now when CD rates are so low.
Pelham, NH · Member since 2010 · 90 posts · 51 votes
10y
Let's say the ARV is $250,000. If you are putting in all the work and he is simply pumping a little cash into it, then maybe his $25k buys him 10% of net revenues? Then if/when you sell the property he gets his initial investment of $25k back at the end? Or a higher percent upfront until his initial investment is repaid then he essentially earns a smaller % of "royalties" from that point on. Gets him into it for long term, gives him a chance to free uo his money sooner, but keeps the development benefits and management income in your hands. I would consider that deal depending on the actual deal financials. I mean if he only earns $500/yr maybe it doesn't shake out as nicely for him.