Recommendations for do's and don'ts when forming a partnership

2 Replies

Hello everyone, 

I'm partnering with two other investors to work together on flipping houses to raise enough cash to then buy and hold a larger multi-unit.

In setting up our operating agreement, what advice do you have to make sure we consider and include? (We'll likely work with a lawyer too but I wanted to crowd source some ideas from people who've been there before).

Here's a little more detail about our goals and roles.

1. We each are committed and add something to the team (one's a contractor, one's great at analysis, one spends time with real estate agents, potential sellers, and raising money). Even with defined roles, we're all willing to share responsibilities and do what it takes to complete projects and find the next project.

2. We each will be making financial contributions to the projects as well (through personal cash and lines of credit).

3. Our goal is to do 10 flips over the next year to position ourselves to buy a multi-unit apartment to buy and hold

4. We plan to have one LLC for the flipping business, and then create a 2nd one when it comes time to buy the multi-family unit

5. We want to make sure for the multi-family unit LLC that there's a clear and equitable exit strategy for any partner who wishes to liquidate down the road.

Thanks for any insights you have to offer.

A few things come to mind:

  • Don't rely on one lawyer for the whole group. Consult with a lawyer who exclusively represents your interests before approving the final documents. 
  • Decide on written procedures for resolving disputes (e.g., arbitration/mediation, who will pay costs, what accountant to use, etc.)
  • Since members have different roles, think about how to measure and reward the contributions of each member. 

This is not legal advice. You should talk to a lawyer licensed in your jurisdiction about your unique situation.

Ask you potential partner... what is the least you will accept to be engaged and moving your part of the business along.

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