How to structure a partnership for a duplex?

Question

I am a part time investor with a specified niche aporoach. I buy 1-4 units properties in Wyandotte County KS where I used to live. I know the community, rent rates, and housing prices. I turn them over to my Dad who still lives with 2 minutes of my target neighborhood and he manages them for an agreed upon percentage of the rents for total management. I am able to be out of town and hands off except for large repairs after the purchase.

I want to buy more buy and hold duplexes, but I recently lost my W-2 job. I have cash set aside for reserves and a new down payment and I will maintain on my other rents until I pick up a new gig.

I am curious what other investors have done in this kind of situation if they want to keep buying.

I have 3 brothers who l could be partners on an investment. Teo live in a market with crazy high standard of living costs. So housing prices in KC sound like child’s play to them compared to where they live.

I need a partner to take out an investment property loan mortgage to do another duplex or triplex or fourplex since I don’t have the W-2 income to get another one right now. I see several deals I want to make a move on, but I am unsure how to fairly structure a deal. If one partner is putting his credit on the deal to make it fly with the bank but I put up some or most of the down payment, what’s a fair split on the rent profit at the end of the year?

What’s credit worth?

In short what should I offer if the other partner is just using his credit to make the deal with me? 75\25 split? 50/50 or 80/20?

What does the seesaw look like? If I put up all the down payment, what should I cut them in for?

Also, I am the knowledgeable one in the family pricing the deal and showing them how we evaluate each potential investment, what’s that knowledge worth?

Anyone else who has done partnerships have thoughts?

I am only considering doing this with my immediate family as partners, my brother/brothers and Dad as manager since he is already managing all of my units.

Thoughts?

Evette Richardson · Answer

A DSCR loan doesn't require W2 income. You can purchase properties based on the appraised value and the rental income. No pay stubs, taxes, or bank statements needed to qualify. And you can purchase in the name of a LLC (if you have one).

Stacy Conkey · Answer

You've got a good setup already, and the fact that you're trying to price this fairly before you ask anyone is the right instinct. Most people work it out after the fact, usually badly.

One thing worth naming before the math, because it changes the shape of the answer.

What your brother would be providing is bigger than his credit score. He'd be personally guaranteeing the loan.

On a fourplex in that range, that's a couple hundred thousand dollars of recourse debt with his name on it. If things go sideways, the bank looks to him.

There's also a cost that's easier to miss. That loan sits on his debt-to-income for years. If he wants to buy something himself down the road, or refinance his own home, this deal is in the way.

Worth bringing up with him early, partly because it's fair and partly because you'd rather find out now if it's a problem.

Now to your actual question.

You're trying to solve one split across three different contributions, which is why every number you try feels arbitrary. Split them up instead.

Carve cash flow, equity, and depreciation separately. They don't have to move together, and treating them as one pot is how people end up at 50/50 and quietly resent it two years later.

Cash flow gets allocated by contribution percentage, so the money in the deal drives that piece.

Your knowledge and your work come off the top as an operator carve-out, before that split. Not as a slice of the same pie.

Because think about what you're actually doing. You picked the market, you know the rents, you price the deals, you run the acquisition, you manage the manager. That's a job with ongoing hours in it. Signing a note happens once at a closing table.

Then reverse-engineer the rest. Ask your brother what return would make him comfortable putting his signature on that loan. Solve for that number, and whatever's left is yours to negotiate.

That's an easier conversation than walking in with 75/25 and defending it.

One thing that will catch you off guard if nobody mentions it, and it's legal rather than a fairness question.

Every partner in a joint venture needs a genuine active role. When a partner only funds or only signs and then waits for a return, you've drifted toward securities territory, and the SEC looks at what's actually happening rather than the label on the paperwork.

With your own brother that feels like overkill. It isn't. Give him a defined role in writing. Approving the annual budget, signing off on capital expenditures over a set amount, reviewing monthly statements. Small and real and documented.

An hour with an attorney who does JVs is cheap, and this is the one piece I wouldn't improvise.

Also worth saying: fewer partners, fewer problems. You mentioned three brothers. I'd pick one.

Every partner you add is another set of expectations and another life event that can unwind the deal.

Which brings me to the part I'd spend the most time on, and the part almost nobody writes down.

The exit.

What happens if your brother needs his money out in year two? What if he gets divorced and this property lands in a settlement conversation? What if the roof goes and he can't fund his half of the capital call? What if one of you dies?

Put a buy-sell in the operating agreement with a valuation method and a timeline. Put in a capital call provision with a real consequence for not funding, usually dilution. Spell out who can sign for what.

You want all of it written while everybody still likes each other. Family partnerships rarely fail over the split. They fail because nobody decided in advance what happens when something goes wrong, and now it's Thanksgiving.

Last thought on your dad. If he's managing this one too, put his fee in writing as an expense of the property. He gets paid as the manager, separate from anybody's ownership. Keeps the roles clean and keeps the conversation easy later.

Jay Helms · Answer

@Christopher J Lemmon - I love the idea of partnerships. Have you spoken a bank that’ll provide you the scenario you laid out? Most banks I talk to require a 1.25 DTI and without a W2, I’m assuming your potential partner will have to do more than provide their credit score, like be responsible for the loan.

How to structure a partnership for a duplex?

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