Posted by Rich Hyams on March 01, 2004 at 08:00:19:
Since we are major shareholders, the company does not owe us any fees/salary for our ‘supervision’ or 'construction management’time. Claims this is the way things run in this country. Is this correct. How is it usually done for rehab projects?
In my opinion, if one partner is putting up all the money and the other is doing all the work, a 60/40 split in favor of the worker is fair. I agree that an additional salary is not appropriate for a 60% share holder.
Partner says that just because we make money on A project, will not dispurse our share of profits to us till all original capital ($168K) is restored.
This I don’t agree with.
Especially if there is equity sitting around. Really, if there is equity anywhere near a major percentage of the 168k, that is just plain wrong.
BUT, you really should have had this stuff worked out before you started, or by the second job for sure.
If you have a track record, a percentage of the existing equity and are doing all the work anyway, you don’t need a partner.
I was at one of my old client’s offices, he saw the ‘I buy houses’ signs on my track, told me had had a big pile of cash laying around that he wanted to invest in RE. I explained what I was doing and he offered to be a cash partner on anything I did. I told him that a partner was too expensive, I explained the deal I had and showed him how much cheaper my hard money at 3 points and 15% was than a partner would be.
He offered to lend me 125k on this house with 2 points and 12%.
Money is easy to find, for someone with a track record already, I think a money partner is very inapropriate.
Hi! I want to thank the folks on this website who have guided me through a whole lot of situations some dark & murky.
Here goes again…
My husband & I own 60% of the company. Financing partner owns 40%. Financing partner has invested a total of 168K which is either equity in other properties or spent as operating costs for the company. (We are a young company)
My husband and I do all the work for the company. Parter claims the following:
Since we are major shareholders, the company does not owe us any fees/salary for our ‘supervision’ or 'construction management’time. Claims this is the way things run in this country. Is this correct. How is it usually done for rehab projects?
Partner says that just because we make money on A project, will not dispurse our share of profits to us till all original capital ($168K) is restored.
As a result we are essentially working for no money and I have mounting debt of survival expenses (since I do this full time)
My question is, if I don’t get paid for my time and I don’t get paid share of profits per project, how do I pay my bills? What do I live on?
Please advise. How does it usually work in this business.
Posted by Larry Texas on March 03, 2004 at 11:32:06:
Consider using money sources as Investors, not partners. … and don’t give away half of your deal. This way you retain all the controll and get the money for 12 - 18 percent, or whatever number you agree to.
I am and have been involved in several such arrangements. As the operating partner I find the deals, do all the fix-ups, and manage the properties - usually buy & hold situations. I never received a salary or management fee, but received 50% of the operating profits, distributed quarterly. The financial partner got the other 50%. When the properties were eventually sold, then the financial partner first got his original investment back after which any remaining profits were split 50/50. This was all spelled out in the original partnership agreement, along with provisions for if the company were to lose money, death of partners, what types of decisions the operating partner can make without consulting with the other partner, etc.
I’ll be happy to email a copy of one of my partnership agreements, which also apply to LLCs and LLPs, to anyone who requests it from me at jjonkmanj@aol.com along with more analyses about such ventures.
Not to sound too brutish but it’s been said NUMEROUS times on this board the importance of not setting up partnerships with people, unless you have AN IRON CLAD agreement. In your case, you don’t. In most agreements all your questions would already be addressed. But either way, I would suggest you get a lawyer. That’s pretty much the end of the story. You are in a potential problem and you want to seek the advice of people you’ve never met?
Set up a new agreement to pay back this guy his capital, and dissolve the partnership. Then GO TO A LAWYER AND HAVE HIM/HER put one together for you.
I agree with Rich. If that $168k was for a specific project then I would agree with the money partner. The house is fixed up and sold. The first priority is to pay the principal invested. Then the profits are split 60/40. But in your case, the $168k went towards purchases and operating expenses. So the return of that principal needs to be spelled out BEFORE any ground work is laid.
Unless I can find private money that’s cheaper than hard money, I only use it (private money) on flips. On a rehab, it’s typically cheaper to go with an HML.
(Unlike other businesses) The good thing about REI, is that you’re not married to the company you started. Particularly when you do flips and rehabs. If things don’t work out with partners on this project, you start a new company and move on to the next rehab, leaving the partner and BS behind.
Das,
wow…
There is a lesson here for ANYONE that is contemplating a “partnership”… that is… get EVERYTHING in writing. The problems you are experiencing now should have been negotiated and agreed to PRIOR to starting the partnership.
Frankly with $168k investsed I can’t believe that the parameters have not been set.
What does your current agreement say? What entity is your business structured under?