My husband and I have been propositioned to be in a “partnership” with a family member where we purchase investment properties and either flip them or rent them out. The reason is sounded like a good deal is because none of us had money for the full down payment of a property on our own. The person proposed that we form an LLC and split everything 50/50. My issue with that is that my husband and I are two people and I am sure that I will be doing just as much work as him and the third person. I do not feel that just because we are married, that we should constitute half of the deal together. In addition, each of us has 1/3 of cash, equity, and retirement money. I would not be using any retirement money. I was told by the lender that I use that when purchasing a second rental property that I would need to have 6 months worth of mortgage payments for current and future mortgages. She informed me that I wouldn’t need this in cash but that I could provide proof of this money in the form of retirement accounts.
I understand that I need to go see a lawyer because I am not very familiar with anything in real estate law or business partnerships. However, I want to have a basic plan laid out to discuss with the third partner before we get any further in the process and seek legal advice.
One person gave me financial advice and suggested that not only do we split it into thirds, but that each person should bill back the company an hourly amount for the work they performed. They reasoned this would ensure that each person was compensated for the work they did. I am curious to know how others in this field think this should be divided and how the work should be computed or compensated.
I asked opinions on another website and was told that there was no way the third person would go for the third way split and having an hourly wage. I know having each person be paid for each hour worked will take more time to track but I think it will cause less problems. I can already see in businesses where one person does less work than everyone else but expects to get the same profit. Plus the guy I would be working with already stated that he didn’t want to have a payout of profits often. He wants the money to be reinvested. Having an hourly wage would provide compensation to each person and make it easier for them to reinvest their profits.
Thoughts?