This is the old “Two buddies start a RE business” story. We plan to pick up 3 to 5 single family homes, rehab as needed, rent out and sell off in a better market (3-5 years?). I need advice on what would be a balanced partnership.
Partner A: I’m a retiring General Contractor of 40 years. I find the properties, rehab, and handle property management duties.
Partner B: Is a CPA & CFA. He will handle banking, financing, bookkeeping ect.
Hard Cash: Partner A: 25% - Partner B: 75%
As both of us being active, does our duties seem balanced for a 50/50 partnership?
It seems Partner B should be compensated for the 25% over his half of the investment.
Since friendship runs deeper than green backs, any suggestions on how to structure this for a fair and long lasting partnership would be appreciated.
TIA,
Partner A
I am always under the belief that equality breeds success. If you both put in 50% of the effort needed to accomplish a task, then splitting the profits 50/50 is a must. If one person performs more than the fist person and the same 50/50 split is expected, then it needs to be stated in writing prior to starting your project to avoid potential problems down the road.
If everything is spelled out prior too and agreed upon prior to then there can be no doubt as to who’s role is what and who gets what. So you will need to decide with your friend what each will be responsible for, and for that responsibility, what percentage of the profits each will receive.
GooD LucK! :beer
“handshake” partnerships are easy, but can quickly go bad if one partner doesn’t do his part, gets sick, gets divorced, gets deployed to Iraq, whatever.
I’ve seen all these. None of them ended well.
Always have a written partnership agreement that documents who will do what, fund what, borrow what, how the business will be terminated, who decides what, who spends what, provisions for division upon death, divorce, everything.
Always, and I do mean always, have an exit strategy.
How you choose to split it is however the two of you are comfortable. If it works for you, then get it in writing. If it quits working for you (you’re doing all the work for none of the pay) then you have a mechanism for correcting it.
Partnerships are a great way to lose friends.
If you both agree that the division of labor is fair and appropriate for each person’s skillset, then you should split the profits equally.
In the early years, treat distributions from the business as return of your capital contributions. Split the distribution 25/75 (if that is the proportion of your contribution).
Once you are each paid back, everything else is split 50/50 going forward.