New to Real Estate · Los Angeles, CA · Member since 2021 · 70 posts · 31 votes
So I initially purchased my first investment property by myself (under my name / no co-owner/ borrower) back in November 2022 with an FHA Loan and very recently (within this last month) my brother & I have decided to partner up on this deal and on future deals moving forward, and we want to go 50/50 on this deal. FYI the title deed, loan & everything else is under my name currently, so im looking for some direction on how to best structure our partnership. Should we start up an LLC (thru an accountant or attorney) and transfer the property into the LLC? Or how would be the best way to achieve our goal to go 50/ 50 on this deal and future deals?
Is it better to use an attorney than an accountant (or vise versa)?
Any information or personal experiences will help! Thanks in advance.
There are different ways of structuring a partnership. Creating an LLC, as you suggested, is a good option for this situation. Before starting, you should confirm with your lender that transferring the property to an LLC would not create a due on sale clause violation. After you confirm this, you can create an LLC and transfer the property into the LLC. The LLC should include language related to you and your Brother's partnership. It should specify ownership, control, and how internal disputes will be handled. This can be done by yourself if you are willing to do the research and complete the processes that are necessary. However, it may be easier to work with an attorney if you do not want to spend a significant amount of time on learning the process.
There are different ways of structuring a partnership. Creating an LLC, as you suggested, is a good option for this situation. Before starting, you should confirm with your lender that transferring the property to an LLC would not create a due on sale clause violation. After you confirm this, you can create an LLC and transfer the property into the LLC. The LLC should include language related to you and your Brother's partnership. It should specify ownership, control, and how internal disputes will be handled. This can be done by yourself if you are willing to do the research and complete the processes that are necessary. However, it may be easier to work with an attorney if you do not want to spend a significant amount of time on learning the process.
There are different ways of structuring a partnership. Creating an LLC, as you suggested, is a good option for this situation. Before starting, you should confirm with your lender that transferring the property to an LLC would not create a due on sale clause violation. After you confirm this, you can create an LLC and transfer the property into the LLC. The LLC should include language related to you and your Brother's partnership. It should specify ownership, control, and how internal disputes will be handled. This can be done by yourself if you are willing to do the research and complete the processes that are necessary. However, it may be easier to work with an attorney if you do not want to spend a significant amount of time on learning the process.
thanks Jason. So you would say to go with an attorney instead of an accountant ? We're wondering which one out the the 2 it would be better to start up the LLC with.
@Alex Ballesteros I would personally suggest finding an attorney who could help you with handling the entire process and in making sure that transferring it to an LLC that you are your brother are both managing members of does not trigger the due on sale clause. Per Jason, you will need to have an operating agreement and entity structure docs either way. Depending on time and money you can draft these yourself (or pay for one that you can use/edit to your needs) or hire an attorney to draft it specifically for your needs and desired outcome.
If your brother is going to be investing/contributing equity towards this deal that has already closed, it may be simpler to set up capital accounts and put that towards his balance that can then be applied towards future properties without either of your interests in the entity being diluted or creating undue headache.
TL;DR: find a business lawyer that you trust and make sure everything is done cleanly so you don't have to worry about it again down the road
Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.
An LLC is a nice way to structure a partnership while also providing some liability protection. If somebody is entering the partnership via the LLC, it should be clear what they are contributing in order to get their shares, whether it be cash or some in-kind service (that choice may also have income tax implications). As a general rule, DIY forms are great until you have a partner. Then it's extremely valuable to have an attorney structure those so the partnership has clearly defined expectations.
I have heard of accountants creating LLCs for clients without any issues. I believe that this may be a fine option for single Member LLCs. However, when you need a custom Operating Agreement with partnership language, you are in a situation where you will likely need legal expertise to create the more detailed document.