Rental Property Investor · Edmonton, AB · Member since 2019 · 4 posts · 1 vote
Can someone please tell me if it is typical that the active partner in a JV deal (the deal finder, manager) should draw a 10% monthly property management fee for managing the property?
Assuming the JV is 50/50, does the working partner's 50% not come from managing the property, finding the deal etc. with no money contributed to the acquisition/ improvement of the deal?
I think whatever you do its whatever you two agree... However, typically if one is doing specific work they should be compensated for it as an expense. In your case, the your partner's management fee is an expense, then you figure the 50/50 split on the profit. Most any business is as such where even owner/members/partnership are paid their salary/wage before profits are splits.
However, then what do you bring to the table? What can you charge for? Is this a balanced compensation scheme? That is, it doesn't make sense for one partner to get take a wage/salary and the other doesn't (assuming there is one ot justify). Certainly, it can be unfair since in tight deal your partner will always get his 10% meanwhile your profit could end of coming to zero.
Sorry, I can't give you exact advice. But, I think it comes down to you particular situation as well as the mentality of you and your partner.
Of course it depends on the exact breakdown of duties but if its a standard breakdown where its inactive money guy and active manager, its straight 50/50.
if its a big property and management is basically a full time job then a fee might be appropriate.
to me this is why these type of jv don't work for buy and hold...only flips. Buy and hold jv should be more equal in duties for it to not become too imbalanced over time
@Eric M. I know there are absolutely ways that a JV partnership can work on a buy and hold property. I've done them, and I know many many others who have done them - one couple in Edmonton did 100 of them! Maybe each one wasn't 50/50, but that's a good starting point. It should be adjusted based on what each person is bringing to the table. Ultimately it's whatever the 2 parties agree to.
In our case, we have a 3rd party property manager who helps us find tenants and deals with and communicates with tenants on daily basis, so really they should be called tenant assistants. There are a lot of advantages to having someone like this on your team. There is still a lot of work that they don't do, for example, they don't deal with any money, they don't make any decisions, and they are not managing the business.
A fix and flip may seem like more work than a buy and hold, but it is just condensed into a few months, while managing a buy and hold property over the course of 10 or 15 years... there will a ton of work and time that goes into it over those years, and it all adds up.
Some of our earlier splits were 70/30 or 60/40, with us as the active partner taking less, but I'll never sell myself short again, knowing now what's involved. The active partner is worth 50%, even if 10% monthly expense goes towards a 3rd party manager or to themselves. It is an expense of the property, like David said. And if the expert bought right, and the property cashflows, there should be plenty of profit for both after that $160/month or whatever goes to the PM.
An experienced PM will find a great tenant in less time, and having one month less vacant will pay for a years worth of PM fees. It's a business decision that the active partner makes in operating the property, with the intent to increase profits for all. :)
At the end of the day, we always tell our money partners, that they will get their entire initial investment back first, and then we split the profits. Our investment is time, but we will never get that time back.