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Forums » Make Deals, Find Partners, Mentors & BirdDogs, etc. » Partnership types

Partnership types Subscribe to Partnership types

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Tag Tags: partnership legal buy hold


Joerg W.

Real Estate Investor · Santa Cruz, California


Forum_avatar_avatar-joergw

Icon_minipost Jul 28 '09, 11:33 PM

Let's say you have a few friends that you finally convinced to invest with you into a property. They agreed to do a buy and hold. Let's say we can buy a SFH cash for $55K. With 3 partners each of us put $25K into the deal.
The house may need a bit of rehab, etc. etc.
What is the best strategy for a partnership? Is there a "simple" contract that we can agree on? Does anybody have an example?
Should we setup an LLC, with the correct purpose statement, and make all 3 partners in the LLC?

Thx

Edited: 06/26/2010 at 09:09AM


Jon Holdman

Real Estate Investor · Denver, Colorado


Forum_avatar_avatar-wheatie
ModeratorPro

Icon_minipost Jul 29 '09, 12:12 AM

The key thing is not the specific entity but rather a comprehensive operating agreement. It should not be a simple contract and certainly not something you just grab from someone else.

Spend some time as a group discussing what if scenarios.

What if someone dies? What if someone gets divorced? What if one of your desparatly needs money and just has to get some of their cash back?

With either a partnerships or an LLC (equivalent for tax purposes), the entity may generate taxable income to each of the partners or members. Will the entity make distributions to cover the taxes, or will the partners have to cover them out of other income?

What happens if money is needed (e.g., a lengthy eviction with lots of damage)? Does everyone have to contribute in equal amounts? What if they don't or can't?

An LLC does give you some protections. For instance, if one of the members loses a lawsuit, the winner is limited in the actions they can take against the LLC.

Edited: 06/26/2010 at 09:09AM

Small_flying-phoenixJon Holdman, Flying Phoenix LLC


Kevin Yeats

Real Estate Lender · Fort Pierce, Florida


Forum_avatar_avatar-kyeats

Icon_minipost Jul 29 '09, 01:42 AM

Jon gave some good advice. Have lots of talks about everything and put your decisions & agreements in writing.

I would consider even finding someone on this board to act as a mentor.

My experience with partnerships is that the first rule is to figure our how to get the better hand in the partnership. It cost me but not much financially and it was worth the lesson.

Agreements upfront may be difficult but they are easier and less costly that trying agree after the fact.

Edited: 06/26/2010 at 09:09AM


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