Hi. New to the forum but will be visiting frequently It would seem easy to split profit and costs when 2 investors split the cost of a real estate investment 50/50.
Say there is a 100k property, one can only invest 20k while the other invests 80k. Figuring that all work is split down the middle, how is costs, rent profit, appreciation profit, etc. best handled?
It’s best handled, or structured, however the partners determine it is best handled or structured.
Probably not what you are looking for but it’s the best answer that can be given. What might work for one person in a given situation may not work for another.
On that, I doubt that you’d find a willing partner that will fund 80% or better of a project, split the work/cost 50/50 and only get a 50/50 split, but anything is possible.
You’re about to set up what amounts to a “Limited Partnership”, and you should document the agreement with something legally enforceable if push comes to shove. Agree on the terms, the costs, and the dividends (profits), and put it in writing. Partnerships can be great things, especially in real estate when going it alone is usually just not the smartest thing to do. Partners help keep you motivated and also help you share the burden of the costs involved in real estate transactions.
HOWEVER, when it comes time to get paid the inherent human condition known as “greed” tends to rear its ugly head. Ive seen real estate/business partnerships tear apart not only lifetime friendships but also families when one partner feels as though he’s not being reimbursed for what he/she feels is their share of the pie.
Making a “handshake agreement” without a legally binding contract is the equivalent of diving blindfolded into a pool…and not knowing if there’s any water in it.
Thanks for your input. I would like to hear opinions on how profits and expenses should be handled. Sure 80/20 split on everything seems the easy route but i’m sure there is more than just that to it. Any extra input is aprpeciated.
Here’s how i do it when two investors contribute an unequal share.
This assumes the work, labor and expenses are 50/50 right?
Say investor A is putting in 80% and you 20% on a 100k property.
I give investor A a note and mortgage on my share of the property for 30k to buy his share down to 50%. (and my share up to 50%)
Now we are equal partners. We are each are on the deed as owners (tenants in common at 50% ownership) but he has security interest in my half. Two deeds at 50% ownership can be created also.
We share 50% of the expenses, tax deductions, depreciation etc.
I pay that mortgage to investor A out of my own personal funds and every 3-6 months we draw on the positive cash flow from the property 50/50.
I use my share of the draw to pay myself back for the mortgage and any extra I can keep.
If the property won’t support this there is a real problem.
If you are liability conscious you can transfer your ownership to an llc. You can even sell your half if you could find someone to buy it. It’s very flexible.
There may be some loopholes that can be tied up with a partnership agreement. I have done this 3 times with all positive results.
Please let me know if this is understood. Not sure if I am conveying it properly.
like Roger mentioned , there are many ways to slice this thing.
In real estate, i find a credit partner who gets 100% financing in his name. from then on we split everything 50-50%.
in the oil-well deals we’re doing, we find someone to put up the cash for leases and drilling and we split it approx 50-50%. in some of the deals where I’ve found someone else’s good deal and that guy is looking for investors, i find the investors and get 25% of their share of the profits.
it depends on how much your partner needs you!