What to Put in a Partnership Agreement (Before Money Changes Hands)
A plain-language checklist of the clauses every co-investing agreement should cover: capital contributions, decision rights, exit terms, and what happens when things go wrong.
Most co-investing relationships don't fail because of the property. They fail because two people had different pictures of the same deal and never wrote either one down.
A partnership agreement is how you turn a handshake into something enforceable. You don't need to draft it yourself — that's what a real estate attorney is for — but you should know what belongs in it before you sit down with one. This is a checklist, not legal advice.
Capital contributions
Spell out exactly who is putting in what, when, and in what form. Cash at closing is simple. Sweat equity, deferred contributions, or one partner covering cost overruns are not. If one partner is contributing labor instead of money, define how that labor is valued and what happens if it isn't delivered.
Also decide how additional capital calls work. Renovations go over budget. Tenants leave. If the deal needs another $15,000 six months in, who pays, and what do they get for it?
Ownership and decision rights
Ownership percentages and voting power don't have to match. A common structure: the money partner gets 50% of the economics but the operating partner gets day-to-day decision authority, with major decisions (selling, refinancing, capital calls above a threshold) requiring both signatures.
Define "major decision" explicitly. Arguments about whether a $4,000 HVAC replacement needed joint approval have ended partnerships.
Distributions
When does money flow, and in what order? State whether cash flow is distributed monthly, quarterly, or held in reserve. If there's a preferred return — one partner getting paid first up to a set percentage — put the exact mechanics in writing.
Exit terms
Every partnership ends. The only question is whether it ends on your terms. Cover:
- Buy-sell provisions. If one partner wants out, how is their share valued, and does the other partner get right of first refusal?
- Timeline. Is there a planned hold period? What triggers a sale discussion?
- Death or incapacity. Does the share pass to heirs, or does the surviving partner have an option to buy it?
- Dispute resolution. Mediation before litigation saves both parties five figures.
The uncomfortable clauses matter most
The clauses about breakups, defaults, and deadlocks feel awkward to raise with someone you like. Raise them anyway. A partner who resists putting exit terms in writing is telling you something.
Once you've agreed on the terms, have an attorney draft or review the document. A few hundred dollars of legal review is the cheapest insurance in the entire deal.