Purchasing in Partnership

Hey Guys,

I’ve got an interested money partner (MP) I’m looking at setting up a partnership with to purchase a large number of properties over the next 12 months. I’m aware of most pro’s & con’s of setting up a partnership and was wondering how others have structured them in the past. At the moment we are finalising our investment goals, stratergy and current finances (he has considerable equity in his own home we are borrowing against on a LOC).

It’s the old ‘I find the property, he puts up the deposit’ scenario. He is in a position to judge each property on its merits once I’ve completed a due diligence report, and I am in a position to purchase the property on my own or offer it to another investor if I choose.

My thoughts are as follows;

Setup parent investment company (my name only)

Purchase each property in seperate trusts under both names (asset protection)

All operational expenses (eg – phone, vehicle, travel, research, failed due diligence fees etc) are expenses of the company

MP pays all costs associated in aquiring the individual property and puts down the required lenders deposit

Property is owned 50/50, however the MP gets a fixed return (equal to the current variable rate at the time of purchase) on his deposit until refinanced out

All money re-financed is split 50/50 regardless of deposit (if deposit is $10k, $20k will need to be refinanced until MP’s deposit is returned)

A sink fund of undistributed profits (excess cashflow) is created for each property and 50% of the total is paid out evenly to each partner quarterly (this is to cover unforeseen expenses, and/or non-regular expenses)

Any expenses not covered by rent are treated as a 50/50 liabilty and it’s a requirement of the partnership that each member has immediate access to at least $2,500 at any given time (personal credit card/s)

Cosmetic renovations on each property will be a part of the purchasing costs (upto $2,000), major renovations will be done through either refinancing or negotiated capital inputs by either of the partners

I haven’t seen an accountant or legal advisor in regards to this yet, but I am not far away from doing so. Any thoughts, experiences or ideas prior to actually seeing the appropriate professionals would be much appreciated.

Thanks everyone,
Leigh []