hello BP , I'm hoping for some seasoned advice on an idea. My brother in law wants to partner with me but just as a financial partner with no other interests in the property. Since we will be combining cash for down payments, would he necessarily need to be included in the ownership? our thoughts are that I would pay him back over time and then he would have no interest at all in any deals we get. I do plan to purchase an umbrella policy to help protect me. THe deal we are considering is a pair of duplexes. im sure there are some things/angles I havent considered here due to my I experience. thanks for your time.
It would be in your brother's best interest for you guys to set up an LLC that clearly dictates the terms of the arrangement.
Without anything in writing, any money he gives you is a gift with the hope of repayment. Obviously the hope would be that you would not screw your brother over - but without the appropriate setup, it would be very easy for you to do so (not to mention legal) if you ever have a change of heart.
If he does not want an equity stake and would be fine with just receiving interest, you could structure it as a promissory note instead of an LLC, but if he will have an equity stake in the investments, then an LLC is likely the best way to go.
Agree with Michael, you need to keep your BIL from wearing the hat of a lender, even being exempt as he may be being family, his security and interests need to be addressed. There is also a matter with the facts of life, I'm sure that around Bebee, there are divorces. You never know what could happen 5 years down the road. Address such matters, you don't need to mention divorce as much as life issues that your attorney can address in a well written operating agreement to an LLC.
Nothing breaks up friends and family relationships like money issues, formalize the relationship as if you were strangers in a well planned business entity. Having this done will probably be less than loan expenses on your first deal! See your attorney. :)
Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com
Agree with the great advice above. As far as setting up the llc, one issue banks have with 50/50 partnerships is that if one person has less than stellar personal financials, issues with cash control may arise. If he is truly only wanting returns and you will be managing the property, you need to distribute the equity and structure the operating agreement such that there is no concern of who has the last say when issues arise or when you're applying for financing.
Thanks everyone for your input; much appreciated! We spoke today about this, and next week will hammer it out formally. So far everything is amicable and this doesn't surprise me, but as noted above, things can change over time and its best we do everything formally to keep everything above board.
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