Want to form a investing Group

I'm not too new to REI, i have bought a few houses that i have lived in and then sold. I also had a friend I helped into a house once. I bought it then leased it to him for a year. Overall i made a little over $10k doing that.

Here is something that has been on my mind for a while. Some family and friends always ask me to let them know if i want them to come in on a deal. My question is can i set up some sort of LLC or group or something where i can have all of them in on deals. The way i see it is that if we all worked together, we can buy more real estate. In total there would be about 7 people buying with me... How can i make this work?

When i think about it i can see the future the way i hope it could be with us finding a deal, getting the group together to see who wants in, buying then leasing the property for a year or so, then profiting.

Please, you thoughts and advice on this... And if you have any advice on setting up this idea in an LLC or something is very welcome too! :)

Edited: 06/26/2010 at 05:30AM

P NW

· OR

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Icon_minipost Jul 12 '08, 09:58 PM

You have to be cautious of partnerships in real estate.

If your relatives are watching you and want to partner with you instead of trying it on their own, there is a very good chance that their idea of a partnership will be that you do all the work and they will sit back and take their cut after doing nothing. If they wanted to do the work, they'd go out and buy something and get started on their own.

If you are going to form an investment group, a lawyer and a contrract are in order.

In my state we'd do an LLC. Unless you live where I live, your local laws and your local court's interpretation of the laws is going to be different from mine. You need to consult a local lawyer who specializes in real estate and have him draw up your partnership agreement.

Edited: 06/26/2010 at 05:30AM

Jim Sharp

Real Estate Investor · Colorado Springs, Colorado

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Icon_minipost Jul 13 '08, 04:18 AM

Put EVERYTHING in writing so there is no way one partner can change the vision of your investment.

In real estate you have to make a lot of decisions, if you don't take these into account when you create a partnership, it will go back.

Edited: 06/26/2010 at 05:30AM

Ryan Steele

Real Estate Investor · Chicago, Illinois

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Icon_minipost Jul 13 '08, 04:18 AM

I would be careful of using the idea of Partnership. Do it PER DEAL only. Do not let them think that just because you help them on one deal, they are suddenly a complete partner in EVERYTHING you do.

I have had that where and individual just basically wanted that, no work, and all the benefits. When nothing was entitled at all. It was one deal. That is why you need to file legal paperwork. They can raise all the stink they want, but in the end, LEGAL IS LEGAL.

Be cautious on this front.

Edited: 06/26/2010 at 05:30AM

J Scott

Real Estate Investor · Atlanta, Georgia

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Icon_minipost Jul 14 '08, 11:23 AM

Do a search (on here or on Google) for " Tenants in Common" . This is likely how you'd want to hold title; in additional, you can set up separate LLCs for each investment, with each partner a member of the LLC.

Edited: 06/26/2010 at 05:31AM

Jason Hanson

Real Estate Coach · Oakton, Virginia

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Icon_minipost Jul 15 '08, 08:09 PM

I agree with Ryan that you would only want to partner one deal at a time. One of the biggest problem that investors have in this business, is dealing with partners and employees.

I would make sure that you are the sole owner of your business/LLC and just have the proper paperwork when partnering with folks on each property.

Edited: 06/26/2010 at 05:31AM

Will Barnard

Rehabber · Santa Clarita, California

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Icon_minipost Jul 16 '08, 11:01 AM

I would make sure that you are the sole owner of your business/LLC and just have the proper paperwork when partnering with folks on each property.

????
What is the proper paperwork for each property and how does that make the other parties partners? This statement makes very little sense.

In order to bring in multiple parties who all contribute funds to a re investment, you must be licnesed by the SEC or utilize an LLC or other entity making each party a shareholder/owner of the company. This is how I understand the law and I suggest you consult with a tax attorney on this before proceeding.

As others mentioned, dealing with partners can be a potential problem, particularly with 7 indivividuals who all must agree on purchase price, exit strategies, what to fix and not to fix, who to rent to, etc. etc. etc. You should consult with an attorney to get the best advice as to how to set the entity/partnerships up and decide ahead of time (in writting) who owns what, who makes the decisions, and how the profits are divided.

Edited: 06/26/2010 at 05:31AM

Will Barnard, Barnard Enterprises, Inc.
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J Scott

Real Estate Investor · Atlanta, Georgia

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Icon_minipost Jul 27 '08, 04:27 AM

Originally posted by "nationwidepi"

In order to bring in multiple parties who all contribute funds to a re investment, you must be licnesed by the SEC or utilize an LLC or other entity making each party a shareholder/owner of the company. This is how I understand the law and I suggest you consult with a tax attorney on this before proceeding.

This isn't necessarily true. You need to register with the SEC to *market* these types of deals, but if you just want to bring together a group of your friends and/or family members, the SEC has no bearing on that.

Also, while your lender might have requirements for how this is done (they may require all parties to be on the mortgage and/or title), if you have a partnership agreement, any group of people can jointly own an interest in any asset. I would certainly see an attorney to get this type of partnership agreement drafted.

Edited: 06/26/2010 at 05:35AM