is there a guideline percentage for partnerships??

Question

I have a partner who is putting up all the cash...I am finding, managing and selling the properties...what is the standard percentage for each partner in this case...I was thinking 60 for him and 40 for me....is this fair?? thanks

James Paine · Answer

@Doug Silverman  If you are new at this 60/40 is fair.

Once you get more experience you can work different deals.

EX1: The Fee Deal

This deal is best if you have a large team or overhead you have to pay.

1%-2% Acquisition Fee

5%-20% Construction Management Fee

1%-3% Disposition Fee

30% of profit after fees to you

70% of profit to capital partner

EX2: Preferred Return Deal

This deal is best if your capital partner wants a consistent return with some upside and/or if you think you have a smoking hot deal.

8%-15% Interest payments on your partners capital investment (paid when the deal closes)

60%-80% Profit to you after Interest (Preferred return)

20%-40% Profit after Interest to your capital partner

EX3:  The Simple Deal

This deal is best if your capital partner is not sophisticated.

50%/50% Split of profits

0%-2% Listing Commission (If you are the broker)

I've put together dozens of partnerships.  Above are a few easy examples.

James Paine · Answer

If the same group is funding all your starting properties then you shouldn't have an individual LLC for each property.

If you can get a 50/50 deal then do it.  Most sophisticated investors wouldn't go for that but hey you might as well ask.

The other way of getting them to do a 100% loan is to maybe ask them to do a loan at a 10%-12% rate and when you are able to refi just pay them off.

Michael Haynes · Answer

@James Paine

That is still unknown, I'd like to eventually not need a financial partner, but for now its required.  I'd most likely have the same group of people funding my first several properties.

I do intend to have an individual LLC setup for each property, and ideally I'd like to be able to refi and pay out the principal within a few years with each also.  I want to make sure my lendor is making money,but I still want to have a return myself.

In my mind a 50/50 share of profits would be the way to go.  I can pony up half the costs to form the LLC but outside of that not much.

As far as paying them interest, would I consider their contribution a loan to the llc to be paid at a specific rate bit forego a portion of the rental income, or would it make more sense to just do a split of all profits from rental as well as when the property is sold or refied?

James Paine · Answer

@Michael Haynes

There are a few potential structures for buy and hold.  Are your partners going to be the same for all the properties you buy or different for each property?

Michael Haynes · Answer

@James Paine

Any suggestions for structure on a buy and hold deal?  I'm looking at rental properties (non commercial). My partner/partners have all the funds, I've got the eye and the drive to get this done.

In my mind I'd pay them interest on their money and we would split 50/50 from profit either at sale or refi.  I do like the idea of brrr to keep moving into more properties.  I'm meeting with the money guy later this month, and I want to bring a structure to the table that makes sense for everyone.

Doug Silverman · Answer

....this is great thanks!!!

Doug Silverman · Answer

No, but I will manage the rehabs, find the deals, analyze the deals, make sure it gets sold etc.

James Paine · Answer

@Doug Silverman are you rehabbing the properties?

is there a guideline percentage for partnerships??

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