Investing with Others: Small Partnerships

Partnerships are like marriages—there are some good ones that last a lifetime and many that don’t last as long as it takes to pay for them. Like marriages, partnerships stand a much better chance of working and lasting if the partners are selected for the right reasons.

Why Would Anyone Want a Partnership?

There is only one good reason I know of to take on an investment partner. It’s that you don’t have enough financial horsepower to do everything by yourself. In other words, you need some help, and most often, it’s financial help. However, there might be other legitimate reasons for needing help. We’ll discuss a couple of kinds of partnership as we go along. Equity shar­ing and timeshare contracts are two types of partnership investing. Both are designed for investors who don’t have the finances to complete the whole purchase.

Developing partnerships to pool individual resources, knowledge, and experience can provide an excellent vehicle for acquiring wealth at a much quicker pace than investing by yourself. I’ve discovered that, in most successful partnerships, the partners will often have very little in common except a strong desire to make money. Sometimes, an account­ant will team up with a carpenter or handyperson, a doctor might team up with a contractor or with a schoolteacher with extra hours and mechanical skills. Quite often a real estate agent who can manage prop­erty will make a very good partner.

However, the downside of partnership investing is that you might end up with someone who doesn’t work out and it can be a serious setback for even the best of plans. You must be very careful when selecting a partner.
Always ask yourself if you really need a partner or do you just think you need one and if it is wise to split the profits. The answers should be very clear before you look for a partner.

Partnerships Must Be Based on Mutual Needs

Consider the wanna-be investor who knows just enough about real estate to be dangerous. He has loads of confidence, but very little cash. Most often, he will attempt to convince someone with money that simply by joining forces they can both end up rich. But, instead, they both nearly always end up broke. Stay away from people who have big ideas, but no money.

Joining with others to make money can and does work, if you can dis­cipline yourself. You must be tolerant, understanding, and very patient. You and your partner must understand that your mutual success depends totally on both of you. You must stay focused on the idea that partnership investing takes full cooperation by all the parties involved—anything less will most likely cause failure.

The questions I ask myself when someone approaches me with a part­nership proposition are these three:
What’s in the deal for me?
What’s the risk to me?
What assurances do I have that a partner will do what he or she says?

One question you should always ask yourself is “What’s the most I can lose if I do make this deal?” Naturally, I’d be very concerned that my part­ner and I shared equal risk.
for Partners: The Selection Process
The process involved in selecting a partner is without a doubt the most important consideration for developing a lasting and profitable partner­ship. Individual needs, ability to contribute, and skills must all be consid­ered and balanced effectively. The selection process deserves a great deal of thought. It’s far too important for quick decisions or snap judgments. Get-rich schemes, given little thought or planning, are generally failures from the very start.

Contrary to a popular myth, investment partners don’t need to be good friends to be successful partners. It might help when getting started, but it’s simply not a requirement. Obviously, enjoying the same social activities has nothing to do with a profitable real estate partnership.
My number-one consideration for establishing a strong and lasting partnership is my own self-interest. Do I really care if my investment part­ner gets rich? I certainly do—because it means that I’ll get rich too. If it sounds like greed provides the need, it’s most likely true. Just concentrate on what I’m telling you and, later on, I think you’ll understand why part­nerships work best when there is self-interest or greed.

Partners Don’t Need to Be Friends

Many small investment partnerships are created almost entirely on the basis of friendships between people who work together, attend the same clubs and churches, or perhaps enjoy the same social activities. Regardless of what mutual involvement brings folks together initially, partnerships founded solely on the basis of friendships are most likely doomed from the very start. No matter how compatible people might seem to be as friends and social acquaintances, they will almost always change when their per­sonal money becomes involved.

This change often reminds me of the little old man in the driver edu­cation films. He’s soft-spoken, shy, and well-mannered—until he gets behind the wheel. Then suddenly all that changes and he speeds down the freeway threatening anyone who dares to come near him. The point is that people don’t always act like you’d expect. Perfect strangers are more like­ly to make better business partners than any of your friends.

How to Find a Money Partner

Many folks would like to create a profitable partnership venture, but don’t know how to go about it. The first thing is that you must determine what you can provide to the partnership—investment capital, your time, or a specialized skill you possess. Include this when you advertise for a partner. There are many people looking for what you have to offer, but since they don’t know you exist, they can’t find you. You must let them know. One of the best ways to find investment partners with the particular qualifications you need is by advertising in the Help Wanted section of your local news­paper. Let everyone know exactly what you’re looking for.
I can still remember my early classroom experiences, when I was a bit too shy to ask the teacher a simple question in front of my class. I was afraid the other kids would think my question was stupid and laugh at me. Then someone else would ask the same question and the teacher would praise him or her for asking such an intelligent question.
What I’m trying to say here is that there are many decent partners around, but you must do something to let them know you’re looking for them. The worst that can happen is they’ll turn you down—and, I assure you, that doesn’t hurt. Just keep on trying until the right one finds you.

Benefits Must Be Totally Equal for All

The biggest problem I’ve observed about small investment partnerships is that they’re almost always engineered or thought up by the person who doesn’t have any money. This person has all sorts of wonderful ideas, but in order to make them work, he or she must find someone with money. The typical arrangement is where one partner is asked to put up hard cash and the other is supposed to contribute an equivalent share of per­sonal services.
I don’t know how you think, but I’m very skeptical about anyone who proposes a joint plan that uses my money and risks only personal services from the partner. The question I ask is aimed directly at the heart of the issue: “If your ideas are so good, then why is it I’ve got the money and you don’t?” There may be several good answers—which I consider reasonable and acceptable—but unless the question gets answered to my satisfaction, I will not consider going forward. If you ask that question and the answer doesn’t satisfy you, then neither should you.

The Courting Period Requires Honesty

The biggest mistake no-money partners make in trying to entice a person with money is to oversell and overstate the benefits the money partner will receive. If I actually received all the profits I’ve been promised, I would need to rent the Bank of America headquarters building to store my money. Fortunately—or unfortunately, whichever way you view it—I did not invest my money in most of these proposals, so I’ll never really know for sure. But, I can tell you this much: a very high percentage of the deals went bust.

Since I have a lot of experience on both sides of partnership investing, as both the person who’s broke and the person with money, I feel I’m qual­ified to pass on a few tips to help you structure a partnership that will hopefully survive the high fatality rate. Because there are many more wanna-be investors who don’t have money, I’ll concentrate on helping you find someone willing to put up the money.

Jay’s 60/40 Rule for Investing with a Money Partner
My “no-compromise” rule for investing with a money partner is the same rule as I use for landlording. I call it my 60/40 rule. What it means is that I’m prepared to give more than I receive—60% to be exact. Here’s the way I apply it to partnership investing.
I’ve always felt that investors with no money should be willing to give up at least 60% of the partnership benefits in order to attract the money. What this means is, if I’m the broke partner, I must be content with 40% of the deal.

You should ask yourself this question about the partnership: Who is more likely to make it alone—the person with the money or the one with­out? Without overanalyzing this question, I think you can get my point. The person with the money will always have a much better chance than the one with no money. Don’t you agree?
Money opens many doors. Therefore, let’s simply concede that the most valuable person in a small partnership is the one who furnishes cash—a.k.a., the money partner. If you develop your plans accordingly, it will help you structure a partnership or co-investment with the best pos­sible chance for success.

A Plan to End Your Money Problems

When I first decided to invest with someone else, I had no question about how I would fit in or what my role would be. Since I didn’t have any money, I would be the worker partner and I was perfectly willing to give up 60% in return for my 40%. I was more than willing to do whatever it took. I already knew that, as the working partner, I’d be responsible for making the property pay off for the partnership.
If you’re successful at doing this—that is, your partnership makes money—and if you’re the partner who is performing the personal (work) services, you’ll never need to worry about finding money to invest again. That’s because there is no shortage of investors willing to invest their money with a winner. What is in short supply are partners who can turn the money into handsome profits.

Let’s discuss a plan that works very well for a small investment part­nership. You might call this plan a “partnership proving ground.”

A Simple A-B Partnership Plan

Partner A has money to invest. Partner B has the time and skills to oper­ate a real estate investment. Let’s suppose I’m Partner B and I’m looking for someone to put up $25,000 for a down payment on some apartments. I find a person with money who would like to invest, but he will first need some assurance that I can operate the property and, eventually, turn a profit. I will need to satisfactorily answer the four basic questions that any investor with money (Partner A) will want to know about the investment and me. Here are the questions.
What’s in the deal for me?
What is my risk if I invest?
What assurances will I have that Partner B can manage the property?
What will Partner B lose (risk) if he or she can’t manage the property?
Like I told you earlier, the benefits must be equal before I apply my 60/40 rule. I always insist my 60/40 rule is what makes a deal work.
I want you to underline this next sentence and read it often: you must never forget it. The better you can become at solving problems for others, the more success you will enjoy for yourself. This applies to everything you touch in real estate, but it’s especially true when you’re a broke part­ner looking for someone with money. Now let’s explore the answers to the previous questions.

Question 1: What’s in the Deal for Me?
I’ll set up some hypothetical numbers to illustrate my partnership pro­posal. $100,000 purchase price of the Good Deal Apartments –25,000 cash down by Partner A
$75,000 mortgage balance with payments of $650 per month
Rents (income) estimated to be $1,100 per month ($13,200 annually).
I’ve already advised my partner that there will be little or no cash flow for partnership distribution to start with. I propose to set up the partner­ship agreement for a seven-year term. (Five to 10 years is the normal range.) My basic plan is to rent out the property for seven years, then sell it and close out the partnership. We’ll then split the profits 50/50.
$150,000 estimated property value seven years from now –25,000 return of capital (down payment) to Partner A
$125,000 balance –70,000 unpaid mortgage balance
$ 55,000 profits to split between partners Cash distribution: Partner A and Partner B get $27,500 each.
The partnership will agree to pay $100 per month management fee to Partner B. All cash flow from rents (projected for years three through seven) will be divided 90% to Partner A and 10% to Partner B. Average 5% annual rent increases will raise rents by approximately $5,000 during the seven-year term. Cash flow distributions to partners will most likely occur starting after three years of operations.
Profits and losses from operations (tax benefits) will be allocated to partners in the same ratio as rents—90% to Partner A and 10% to Partner
B. This can be a money-making benefit for Partner A, depending on his tax bracket and gross income from regular wages or other ordinary income.
In summary, this plan will allow Partner A to net out very handsome profits during the seven-year partnership term. First, the $25,000 invest­ment will return a $27,500 profit. Second, there will be income tax savings from his ordinary income (tax shelter). Finally, cash flow from rents will accumulate, beginning at year three and going through year seven of the partnership term.

Partner B, who invests no money, will benefit from the $27,500 profit after seven years, plus the $100 monthly management fee for 84 months ($8,400).

This is not an unusual partnership arrangement. In fact, it’s quite common. As you can see, there are excellent benefits with earnings that far exceed other types of investing. Imagine if you’re the broke investor (Partner B) and you’re successful at putting together a few of these part­nership deals. It’s truly an excellent opportunity to build wealth starting with no money at all. You can use your skills in lieu of investing money.
There are many other opportunities that become available as you gain experience and expand your creative skills. For example, if you happen to be handy, you can do all repairs and maintenance yourself and bill the part­nership for your labor. You’ll do fine even if your billing rate is half of what licensed tradespeople charge. The partnership saves money on expenses and, obviously, you earn more money. If the rental income doesn’t cover your expenses in some months, keep a running log and collect it later. Your flexibility helps the partnership as well as building wealth for yourself.
Question 2: What Is My Risk if I Invest?
Obviously, the money partner will be very concerned, especially if Partner B doesn’t have a proven track record. He needs to feel safe and you must be able to assure him. There are a couple of methods to do so.

First, you can purchase a property as tenants in common with undi­vided and unequal ownership interest, such as 90% for Partner A and 10% for Partner B. This arrangement (ownership percentage) should be speci­fied in a co-owner agreement. More about that later.
The problem with this arrangement, from the money partner’s viewpoint, is that all the money invested is his or hers. Partner B has no money at risk. If Partner B can’t or, for some reason, won’t perform his or her duties, then Partner A has a couple of serious problems. First, he or she has no day-to-day manager or anyone to handle the apartment operation. (Remember: Partner A is a passive investor and can’t handle daily opera­tions.) Second, he or she could have a tough time trying to get Partner B’s name off the property. It is possible to avoid this problem by having Partner B sign a quitclaim deed in advance, to be recorded in the event that something goes wrong. Still, there is a good possibility for a lawsuit, with attorney fees involved.

If this first arrangement is not satisfactory to a money partner, per­haps my second method might offer a better solution.

Question 3: What Assurances Will I Have That Partner B Can Manage Property?
With the option arrangement above, Partner A can quickly get rid of Partner B if he or she does not meet the terms of the co-owner agreement. This plan is generally quite favorable with money investors, because it rep­resents less liability to them if something goes wrong. The worst that could happen is that Partner A would be the sole owner of a rental prop­erty without anyone to help manage. That’s not so bad, as he or she can easily hire a professional manager.
If I were Partner B in this hypothetical case, I would have no problems with this arrangement. After all, I’m the partner who must prove myself since I have no cash to invest. Again, don’t forget my 60/40 rule. You must be willing to give more—and it will make you very wealthy in the end, believe me.
Question 4: What Will Partner B Lose (Risk) if He or She Can’t Manage the Property?
If I’m the money partner, I’m naturally concerned about my own risk. However, I’m also concerned about what my partner stands to gain or lose on the deal. Obviously, it’s not cash, since he or she has none invested ini­tially. However, in our hypothetical transaction, Partner B stands to earn $6,400 annually. Naturally, he will lose that much if he blows the deal.

Quite frankly, $6,400 is a very respectable incentive when you’re broke. Here’s how I figure Partner B’s gain or earnings.
$27,500 profits at the end of seven years (termination or sale)
8,400 management ($100 per month for 84 months)
8,400 labor billed to partnership ($100/month average for 7 years)
500 10% share of cash flow, years four through seven
$44,800
$44,800 divided by seven years equals $6,400 per year, for terms of part­nership.
A partner without money who can earn $533 per month for seven years has a lot to gain. Even though he has no up-front money invested, chances are very good that he or she will consider a profit of $44,800 worth the effort. I always want my partner to make big profits, because in doing so he’ll automatically earn big profits for me, too.
Alternate Partnership Plan: Option to Purchase
Here’s another possibility. Partner A could be the sole owner. That is, pur­chase the property in his or her name only. Partner B can protect his or her interest with an option to purchase the property at the end of the part­nership term.

Let’s say the option to purchase says that after seven years Partner B has the right to purchase 50% interest in the property for the initial pur­chase price of $100,000. He can do this by putting up an equal cash down payment of $25,000, just as Partner A did to acquire the property. In real­ity, Partner B won’t put up a dime. It’s done in the form of a credit. The net results will be the same, as shown below.

$150,000 selling price (value) –25,000 return of initial down payment to Partner A
$125,000 left over –25,000 Partner B’s cash down payment (exercise option-to-purchase)
$150,000 balance –25,000 return of cash down payment to Partner B
$125,000 left over –70,000 mortgage balance
$55,000 balance to split between partners

As you can see, the bottom line or profit remains the same. Each part­ner still receives $27,500 as his share. However, with this arrangement, Partner B is not on the title until he exercises his option. The right to exer­cise the option can be tied to specific performance. If performance is not achieved, then Partner B cannot exercise the option and Partner A does not have the problem of trying to clean up the title. He is already the sole owner of the property.

A Tenants-in-Common Partnership

Co-ownership investing can be an excellent way for a couple of individuals to acquire real estate together. Often two investment-minded people will get together and decide it would be a great idea to pool their resources and buy rental houses. They figure they can sell them later and split the prof­its. With this sort of informal plan, the best way to acquire property and take title is as tenants in common. Don’t confuse this with being a renter—called a tenant—or with joint tenancy—which is generally how husbands and wives take title to jointly owned properties.

Formal partnerships have several disadvantages for smaller, mom-and-pop investors. First, it can be more expensive to set up the bookkeep­ing. A formal partnership is like a separate taxpayer in terms of income tax reporting. Federal taxes are prepared on a special form (Form 1065), with a Schedule K-1 for each partner. Aside from being more formal and expen­sive, they can be a pain because 1065s are excellent sources for govern­ment tax audits. Also, partnership statements and fictitious business name documents must be filed in each county where partnership property is owned. That means you’ll always need copies and updates for bank loans or refinancing.

Perhaps the most serious reason to stay away from formal partner­ships is because you cannot exchange partnership interests using tax code Section 1031. For this reason alone, you should give serious thought to keeping your association informal, because tenants in common investors can benefit from 1031 exchanges.
Most banks or institutional lenders will not make direct loans to small partnerships. Individuals generally have a much easier time borrowing money. Having information on file will most likely require you to purchase a local business license to operate rental properties.
Tax reporting is done by each partner on his or her individual tax form (1040) for Federal taxes. There are no additional tax forms requiring infor­mation about the partners. As a tenant in common, each partner can own any percentage of the property agreed upon—50/50, 20/80, 90/10, or any other combination. Whatever it is, however, it should be specified on the property deed when the ownership is recorded. If a tenant in common dies, his or her share of ownership in the property is passed to his or her heirs. That’s different from joint tenancy, where the surviving joint tenant gets the share of the deceased tenant.

A Partnership Design Is Negotiable
The hypothetical partnership we have been discussing is only to show you how it could work. There are dozens of ways to structure a small partner­ship to meet the needs of the parties involved. There are absolutely no lim­its to how creative you can be.
The terms of the partnership—who gets the cash flow, how profits and losses are allocated to the partners, who does what work, and how to divide the profits at the end—are negotiable and strictly up to the individuals who set up the partnership. What is most important for the success of any partnership, no matter how it’s structured, is that everyone gets at least what he or she is promised. I cannot over-emphasize this point. That’s why my 60/40 rule works so well.
When I’m involved with a money partner, I work extremely hard to make sure my partner gets all of his or her benefits before I even consider mine. If you follow my advice, you’ll never have to worry about down pay­ment money again. Investors with money will start calling you after a while.

Sound Advice with a Harsh Bite
With partnership investing, you definitely need a partnership agreement, but it doesn’t have to be expensive. I will show you exactly what kind of agreement you need to keep you and your money partners on the right track. You do not need to be formal partners to invest together. There’s a simpler way, as I shall explain. First, however, allow me to offer a few sug­gestions and some personal philosophy, since I’ve been a participant in many small, informal investment groups.

This advice may sound somewhat harsh; however, I received it years ago from a friend and it has worked very well for me. The advice was from a marriage counselor who told a young couple contemplating their wed­ding, “Before you get married, consider what you plan to do when you get divorced.”
I’m not sure how long the counselor lasted in the counseling business or how many couples sought his advice, but from a purely objective stand­point, his advice makes a lot of sense. In fact, it’s exactly the same advice I pass along to anyone who is thinking about buying real estate with anoth­er party. The best way to guard against failure is to be prepared for it and then do everything you can to prevent it.

The Partnership Promise: A Co-Ownership Agreement
Once negotiated, everything the partners agree to must be formalized. That means you need a written document—the co-ownership agreement. Do not run your business on verbal promises. You’ll end up on the short end of the stick if you do.
The co-ownership agreement doesn’t need to be very long, especially for small, two-party associations. You must, however, spell out your invest­ment plan. For example, how will you purchase the property? How much money will it cost? Who pays for what and when? You’ll also need a state­ment about the purpose of the partnership (what you’re doing).

Important Terms to Include in the Agreement
Next, you need to write up the rules of the co-ownership agreement. These are the important terms the partners must live by. I will list the important terms you must make sure to address in the co-ownership agreement.
Names of partners, place of business, dates
Form of business (e.g., general partnership, corporation, or limited association)
Capital contribution—Who puts up the money, when, and how?
Sharing income, expenses, profits—How will they be divided?
5.Who can sell, encumber, transfer, or purchase new property?
What to do about disagreements?
Who will keep books and records and do taxes?
Death of a partner—What will the surviving partner(s) do?
Indemnification of each partner against debts of the other(s)
Violation of terms of agreement—What will you do?
Restrictions of the partners (e.g., don’t allow borrowing or pledge the property)
Termination—When, how, for what reason? Is extension OK?
Withdrawal partner—How to split assets and in what manner?
These are your primary considerations. When you agree to invest your skills and money, take the time to write down the rules you’ll conduct business by—it pays. You’ll find an example of the co-ownership agree­ment at the end of this chapter.

Never Invest Without a Written Agreement

The agreement to buy real estate and deciding how to conduct business and pay taxes are the easiest part of partnership investing. Not unlike new marriages, the real test always comes after the initial promises.
The biggest mistake any two partners can make is to begin buying properties without a written agreement. You must decide who is respon­sible for what, who does what, how the money is allocated, and—last, but perhaps most important—how to terminate the investment, in case things don’t work out.
This contract is not meant to be exactly the same for every transac­tion. But, it is typical of the kind you might use for co-investing. The con­tract is what you write up to formalize and document the terms you agree to when you make a deal. Remember the important terms we’ve already discussed when you write up your own contract. Never forget that, when investing in real estate, if it isn’t in writing, it just ain’t so.
A hypothetical co-ownership agreement between Fixer Jay and Sam Moneybags is shown at the end of this chapter. It outlines the terms agreed to by both investors. The agreement can be recorded at the local county recorder’s office. I always prefer to record a memorandum of the transac­tion instead, without specifying the terms on public documents.
Memorandums are my choice, because I don’t like telling the general pub­lic about my business affairs.

Finding Money When You Don’t Have Any

One plan that has worked very well for me is another variation of having a partner or co-ownership arrangement.
Let’s say you are like many other short-of-cash investors trying to get your investment plan off the ground. You have that big dream, plenty of personal drive, a willingness to work hard, but your bank account is empty.
We’ll say you’ve already found a good income property, but the seller wants the normal 20% cash down. Let’s assume that, even though you have a regular 40-hour-per-week job, you’ve made up your mind you are willing to work evenings and weekends to build real estate wealth. You don’t have much money, but you’re willing to do whatever it takes to get your investment plan in motion. To put it another way, you’re ready to contribute yourself—you’re willing to substitute your time and energy in lieu of the cash down payment.

No Money Is No Problem—Once You Prove Yourself

What you need now is someone who has money—a partner who is ready, willing, and able to put up the cash down payment. As I said, you’ve already found a good solid investment property with great potential, but you need the down payment money fast.
Let me ease your mind by telling you that lots of people are willing to invest their money in these kinds of transactions: they are more plentiful than you might ever imagine. However, there is a catch—they can be very difficult to find when you’re starting out. The problem is that all investors like safe bets. They like to deal with winners. The ones I know are always eager to invest their money, but only if they think you can make them more money.

You Must Develop a Good Record

Hands-on working investors—who develop the ability to find rundown properties, fix them up, and make healthy profits for their cash-investing partners—soon develop good reputations. The problem for new investors is obvious: they have no track record yet. So when you’re new, there is no evidence that you know how to invest money and earn a profit. That’s the biggest obstacle you must overcome. It’s not an easy task. However, many others have done it, with less ability than you. So you can do it, too.

A Sample Co-Ownership Agreement

The following is a sample of the kind of agreement you should prepare in setting up a co-ownership agreement. It assures that all parties are on the same page and spells out the terms of your understanding. Any such doc­ument should be notarized by a certified notary public as well.

1234 Easy Street, Golden City, California
THIS AGREEMENT is made effective as of the first day of April, 2002, between Fixer Jay and Sam Moneybags.
Transaction: Fixer Jay (Jay) and Sam Moneybags (Sam) will join together as co-owners for the purpose of owning and operating that certain real estate located at 1234 Easy Street, Golden City, California (the Property), for the mutual benefit and profit of each. Each party agrees to perform fully under this Agreement for the suc­cess of both parties herein.
Acquisition of Property: Sam and Jay have purchased the Property for a purchase price of Seventy-Five Thousand Dollars ($75,000). The cash down payment of Twenty Thousand, Five Hundred Dollars ($20,500) was paid by Sam. Both parties will take title subject to the existing mortgage lien in the amount of Thirty-One Thousand, Five Hundred Dollars and 00/100 ($31,500). The seller of the Property has agreed to finance the balance of the purchase price, approximately Twenty-Three Thousand Dollars and 00/100 ($23,000), with installment payments of Two Hundred Dollars and 00/100 ($200) or more per month, including seven percent (7%) interest until the entire principal is paid in full.
Cash Distributions from Rental: All excess cash derived from rental of the Property, after payment of all expenses and debt service,shall be divided eighty percent (80%) to Sam and twenty percent (20%) to Jay.
4. Cash Proceeds from Sale or Refinancing of the Property: Net
cash proceeds derived from the sale or refinancing of the Property
shall be shared as follows:
First, Sam shall receive back all of his capital invested in the Property by way of the initial down payment, fix-up expenditures, and operating expenses made pursuant to Paragraphs 2, 11, and 12 hereof. Thereafter, all remaining proceeds derived from the sale or refinancing shall be shared eighty percent (80%) to Sam and twenty percent (20%) to Jay.
Management: All decisions regarding the management of the Property shall be made upon the joint approval of both Sam and Jay provided, however, it is agreed that Jay will have primary responsibili­ty for the day-to-day management operations, such as rent-up, prop­erty maintenance, repairs, cleaning and the like, in order to conduct an efficient rental business. (Rent-up is the time it takes for newly constructed or renovated rental properties to be fully occupied.) Jay shall receive a 6% management fee per month (fee based on income) for managing the property. In addition, Jay shall be reim­bursed for his actual out-of-pocket costs and expenses incurred in connection with such management.
Books and Records: All books and records will be kept at the office of Jay. A statement of operations will be provided to Sam on a monthly basis. This statement will be prepared by Jay as part of his management duties.
Bank Accounts: Jay shall maintain a commercial checking account at Gold Street Bank, 2930 Silver Lane, Golden City, California, or at such other banking institution that shall be approved by Sam, for the purpose of operating the Property.
Indemnification: Each party shall indemnify and hold harmless the other party and the Property from and against all separate debts, claims, actions, and demands of said party.
9. Termination: This Agreement shall terminate upon the sale of the
Property or by mutual consent of Sam and Jay. Sam shall have the
sole right to determine when the Property is to be sold, provided,
however, that Sam shall first offer Jay the right to purchase the
Property for the same amount and upon the same terms and condi­
tions as Sam is willing to sell the Property pursuant to a bona fide
offer received from any third party. Jay shall exercise said right of
first refusal within ten (10) days after the receipt of notification from
Sam of his intention to accept said third party offer. Jay shall con­
summate the transaction within sixty (60) days after the exercise of
his right of first refusal.
Death of Parties: Upon the death of Sam, Jay shall have the right to either purchase Sam’s interest in the Property in the manner described in Paragraph 9 hereof, based upon a bona fide offer received by Sam’s estate or, in absence of such an offer, Jay shall have the right to cause the Property to be sold and the proceeds divided in accordance with Paragraph 4 of this Agreement. In the event liquidation is elected, Jay shall proceed with reasonable dili­gence to liquidate the Property within twelve (12) months after Sam’s death.
Initial Fix-Up Expenditures: Initial fix-up funds for rehabilitation of the Property will be contributed by Sam. All work will be per­formed by employees of Jay. Employee time sheets and material invoices shall be part of Jay’s record keeping.
Operating Funds: All expenses for repairs, improvements, taxes, insurance, maintenance, and other operating expenses deemed nec­essary for the operation of the Property shall be paid first from rental income derived from the Property and, thereafter, from additional funds to be contributed by Sam.
Business Address: The official management office for the Property will be Jay’s One-Stop Rental Company, located at 2020 End of the Trail Drive, Golden City, CA 96001. The mailing address is c/o Fixer Jay, P.O. Box 492029, Redding, CA 96049-3039
14. No Partnership or Joint Venture: The relationship between Jay and Sam under this Agreement shall be solely that of co-owners of real estate and under no circumstances shall said relationship consti­tute a partnership or joint venture.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first above written.

Sam Moneybags

Read Fixer-Uppers part 16

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