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Mentor
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Subject Expert
15% of profits or 15% of revenue?
Most property managers charge 15% to 20% of revenue. For you to only be getting 15% of profits means that the partner is probably getting double or triple what a property manager would normally get.
Flip the script. Pay them 15% of revenue off the top, and offer them 15% of profits at sale for their expertise.
Subject Expert
So basically you’re providing 20% of original purchase price. Assume mortgage to fund remainder. Other person is finding Reno’s plus managing.
15% of the profits prob is a little low of the total deal. Maybe 30% would be more fair.
I used to worked in public accounting in real estate. I would empathize that the % you invest into the business, % of expenses, and % of income should all be the same. If the property is ever sold, you should get your % of the investment. So if the property sold at a loss, you get less. If sold at a gain, you get more than your initial investment. While passive income is great, the sale on the property is also a huge advantage and you don’t want to get capped on getting back your initial investment.
Mentor
If you’re essentially putting up all the funds to buy the property just hire a management company. Some realtors specialize in short term rentals and will help you find a good property and sometimes even offer the management service too.
No. Bad deal. These things end in flames and your the one putting capital at risk, and prob have most to lose on joint liability. Unless he has a proven history of finding bargain purchase opportunities and executing (newsflash - he doesn’t), then he’s just finding a gullible investor to pay a premium for management services.
What’s your exit strategy here?
I’m also debating if it’s better to find a passive strategy in real estate or is investing in index funds a better idea for long term gains and minimal amount of active work.
Heck no. Id do 50/50 split with you
So he would coverage the mortgage?
Bad deal, you won’t make money like this. You’re practically putting up the whole downpayment. You could make a solo purchase and rent it out long-term if you don’t have the time or do short-term rentals if you can make the time. Or you hire someone to take care of the rental property, through a management company or by hiring someone privately.