How to split profit in a property management business inc between two owners?


1

My friend and I are starting a property management business (inc). How do we determine profit sharing? We charge property owner a set percentage as a fee. We are thinking 50/50 on everything losses and gains, however what about work hours invested, duties, etc? what if one partner does more work than the other? What if I bring in most of the business?

Equity Compensation Partnerships Real Estate

asked Dec 8 '10 at 14:21
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User5860
6 points

2 Answers


1

I wonder if you're coming at this from the wrong angle?

First, you're establishing a company. The owners (you) will enjoy a share in the profits. And at some stage you will sell the company or part of it and realise a gain on its value as a business.

If you're partners in this, I would expect you each to hold 50% of issued equity. And you may want to agree some guidelines principles for distribution, so that (for instance) you don't find you're always disagreeing about how often to draw from the business, how much to keep in the business, when to invest and so on.

Second, you're executives of a company. You have roles and responsibilities, and there's no guarantee that your contributions will be equivalent.

To deal with this side of the equation, ask yourself the question: when we hire someone else, how will we pay them? A salary based on working hours? Bonuses for signing new business and for retaining customers on renewals? Profit share? You already know how property businesses work. So decide how yours is going to work when you start hiring.

And whatever structure you design, on principle you should be eating your own dog food. How you're both remunerated for your daily role should reflect how you'll remunerate your first hire. If it were me, I would even agree the salary levels and a schedule (say, 25% of notional salary for the first 6 months, 50% for the next 6, 75% for the next 6 and 100% thereafter).

Now, you're just starting out, so you know there will be peaks and troughs, you'll both be taking risks that no employee will expect, and you need to make sure between you that the routine work is always getting done. But that doesn't stop you creating a compensation scheme that will allow you to recognise your own particular contributions, and which in due course will include other team members. And this will also help you to design appropriate admin so you can keep track of how the business is going and carry out the compensation calculations.

By separating out the two elements of ownership and employment, you'll already have started to head off some downstream issues, and created a structure that will grow with your business and help with your exit.

answered Dec 8 '10 at 18:36
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Jeremy Parsons
5,197 points

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First off, are you both licensed Realtors? (I am assuming US)
Are you both working on the full time, or is it something you are doing in your spare time?

If it were me I would make it a 50/50 business with very clear performance and work expectations and very clear exit/divorce process. (Perhaps a lottery or choice of picking clients/accounts one by one, or other terms for buyouts.)

It may be useful to have incentive to have commissions for sales, but in general you should look to balance each other out - fill in the gaps where the other person is weak.

If the partnership becomes lopsided then figure it out.

You are going to both have to work to make a living.

Define the roles and exit strategy NOW.

In all my years as a landlord (15 years) I never used a property manager - I found them to be over-priced and never provided the same quality of management that I could.

answered Dec 8 '10 at 14:43
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Tim J
8,346 points

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