Six units, $480k purchase, and I still don't know how to split this fairly
The building is in Trenton, NJ. Purchase price $480k, we're putting 25% down so $120k, and I'm covering the full $120k as the equity partner. My operator is a guy I've known for three years who self-manages a four-unit two blocks away, so not a total unknown, but this would be his first acquisition as an operator rather than an owner. He's bringing the deal, doing the management, and handling the day-to-day on a building that has two vacant units we need to stabilize. Pro forma puts stabilized rents at $7,200 a month gross, which at a 7% cap gets us to somewhere around $1.1M on exit, assuming we hold four to five years and execute the lease-up. I modeled a 8% preferred return on my $120k before any split, and then a 70/30 split in my favor until I hit a 15% IRR, flipping to 50/50 after that. He pushed back and said 70/30 the whole way feels punitive given he's running the thing full time with no asset management fee. I can see his point. He offered 60/40 my direction with no promote hurdle, just a straight split from dollar one after the pref. On paper that's actually cheaper for me at the IRR levels we're projecting, but I lose the upside protection if he runs it better than modeled. The part I keep circling back to is whether a pref with a tiered promote is even worth the negotiation friction on a $120k check. Maybe the 60/40 flat structure is fine here and I'm overcomplicating it for a deal this size.
