I'm not sure how to figure this out. Let's say I want to invest in a property (to rent, flip, whatever). I have cash but can't get a mortgage. I have 2 partners who can get a mortgage, but don't have cash. For example, a property costs $130,000. I put in $30,000 cash, Joe puts in $40,000 mortgage, and Bob puts in $60,000 mortgage. The house needs repairs before it can be rented or sold, estimated at $4,000 in materials and $6,000 in labor. I have the skills to do all that myself and can put up the $4,000 additional. I will do 80% of the work, Joe will do 20%, and Bob does not want to be involved in that.

How would you go about figuring out an agreement to split rent and profits when the property is sold? How would you figure out how to pay for things (mortgage, insurance, property taxes, maintenance) in the mean time?

I know there are many ways and it comes down to a unique agreement, but how to compare apples to oranges here and come up with something fair?

You > Joe > Bob

Money comes from the loan to pay for expenses.

Anyone have anything just a tad less vague?

LLC

You get % based on money put in, if they want to mortgage out their part that's fine, but let's say to make it easier you put up 50/100 cash and they put up 50/100 mortgage

They are gonna pay more including interest, but that's their choice and still own only 50%

The costs should be looked at the same way

Yeah that's what I was thinking too, but one person told me they were getting a great deal. Mortgage - no sweat off their back, no cash tied up, and virtually no risk - if the house has to be sold or we bankrupt, the bank always gets paid first - my money is at the most risk.

Regarding the LLC, what if we put a second property in the LLC and that deal is structured differently?

LLC are very flexible. You should have no problem with the help of a competent lawyer.

Don't see how bank would be getting paid first from your share

Guess I dunno tho

Because if we default on the loan, the bank has the house as collateral. I don't think there's anything I can do in that situation. If it goes into foreclosure the bank will sell off the house, possibly for less than it's worth, so they get their loan money back. I could lose my down payment money, but the mortgage investors won't lose any money.

What ought to be happening is this:

Ideally, the mortgages on the property are personal notes for Joe and for Bob for their 4/13 and 6/13 of the property. They shouldn't be able to put a mortgage on the entire property if you own part of it. (Technical loan stuff that I don't fully know follows here.)

Now, if the property is paying the mortgage directly, there should be monthly disbursements/owner draws to:

You 3/13 (as cash, since you have no mortgage)
Joe 4/13 (made out to Joe's bank)
Bob 6/13 (made out to Bob's bank).

If Bob and Joe are paying the mortgage out of pocket, just make sure that whenever you take any kind of draw from the property, you do it proportionally.

Re: the repairs, the sensible thing to do is make all the partners put in money to take care of the repairs, and then pay out according to the work. If they can't, well... you're putting up $8800 of materials and labor, Joe's putting up $1200, and Bob $0. What should be put up is you $2308, Joe $3077, Bob $4615. Assuming that nobody wants money to actually change hands, you can put on your books a

Due to You: $6492
Due From Joe: $1877
Due From Bob: $4615

to balance things out, when the property gets sold.

I'd also add that if you have an LLC set up, you really REALLY need to be careful to actually operate as one (i.e. none of the "oh, I'll do the labor and you guys can just pay me back). If you want the benefits of the LLC, you need to stay on top of that stuff.

Another structure is that equity gets paid first after the mortgage. Until you get paid in full, the mortgage guys get no cash flow. You can also negotiate a % return on your equity until paid off.

Equity has the greatest risk and should get paid first.

Sweat equity is simply capitalized into the whole cost and can be paid first or after you get paid off, but before any excess is distributed.