I am investing in long term buy and hold rental real estate and have had multiple family and friends express interest in "going in with me" on properties. Aside from the legal entities that are involved, I was wondering how others have structured similar partnerships. What I am particularly interested in is, if I am running the business, ie. finding properties, underwriting, negotiating, overseeing rehab, finding a manager, etc, and my partners are simply providing capital, how do I put a value on my time? If we had a 50-50 partnership, is it normal to have a partner provide the capital for down payment and my contribution to the deal would be the tasks listed above and then we would have equal shares of equity? I am curious how others have structured their partnerships when investing in real estate.

Currently, we are looking at $75K-$150K single family homes, or more for small multifamily buildings.

There's probably a million ways to structure deals like you are describing but ultimately it comes down to what you and the "passive" partner are happy with. I've done over $7B in real estate deals of all kinds and I would say for the most part, passive partners want to see the operator put some skin in the game, even if it's 5-10% of the total equity. And finance guys love to come up with exotic ways to split profits. I'm not sure your level of familiarity with excel and waterfalls but there's some great pre-built models here that I've used in the past.

https://www.adventuresincre.com/

I'd be happy to jump on the phone and discuss in further detail or grab lunch sometime if you'd like.

Last thing…protect yourself legally as the operator. Last thing you want to do is go to jail because you violated some securities law you didn't know existed.

Can you easily, and relatively quickly, get a loan from a small local bank? If so, I wouldnt pay them more than you pay the bank. Would you split your profits 50/50 with a bank? It's funny how if you had been looking for a partner for your first deal, nothing but crickets. Now that these people see your success, they are after a piece of your pie. Tell them you dont really need a partner but might be interested in a loan and see if they are still interested. The knowledge, experience, work ethic, and finding the deals is the hard part. The funds come easy.

There's only three reasons for a partner, in my mind.

1. You cant easily get a bank loan.
2. You can trust that partner to work just as hard as you do.
3. You have a run and gun, churn and burn, business plan with a goal of doing as many deals as fast as possible and you truly need access to a lot of funds fast.

If those dont describe your situation, then start building a good relationship with 2-3 small banks in your local area. Try to find loan officers that have the ability to wave the wand at their banks to approve your loans. Make them your partners.

I have been LP in syndication and starting to be on the GP/funding side of large RE syndications (40+M properties).

As a GP/Operator, getting syndicated funding significantly lowers your risk. If you go with a bank, you typically will need 20-30+% of your own money for a prime rate. Are there banks that will fund 100%, if so the higher risk/rate would be a huge headwind.

If you only use bank money, vacancy drops=income drops, where do you find the shortfall? If you can't float the carrying costs, the bank will foreclose, and you could be held liable.

If you syndicate, the risk would be much less with a much longer runway. I am with Jamie on this one and especially like waterfalls.

What am I missing?

With this said, I would never do business with family as a GP/Operator. When family/friends/relationships are involved, it could start to affect your judgement. Imagine is your sister wanted to pull her money out to pay for some family emergency, are you able to tell her no?

I just don't want to risk relationships over money; I have said no many times to family members in the past and will continue to do so in the future.

As you pursue more RE deals, rental property and/or development, the need for capital increases. Here and there I find myself pursuing private money and giving simple interest in the 12-15% range in exchange. That's another way to do it.

Thanks for the responses. I appreciate the opinions from different perspectives. Getting financing isn't an issue right now, but increased capital towards down payments will allow me to scale the business faster. I understand about being careful regarding mixing relationships with business, that is something that I am cautious of. I'm approaching this with the mindset that an exit strategy should be in place from the start and treating these with a "when" we go our separate ways, instead of "if" we go our separate ways mentality. Thanks for the info!