Creating a Partnership

4 Replies

Hello, I am about to form an LLC with my friend who has his own contractors business, and I am a real estate agent. Our goal is to start flipping houses now build some cash and then buy and hold duplexs. I am looking for advice on forming this partnership, pros and cons, and then also he is wanting to go the route of taking a business loan out, and I have the ability to pull a HELOC loan for 20 to 30k. Any advice on how I should go about starting this partnership and maybe some advice on what kind of contracts we should have between each other when forming this.

Thank you,

Geoff Cavneder

@Geoff Cavender , I would start with the small business administration. They have lots of good things on their site you may need. Developing an operating agreement for the LLC will help establish the basis of your business, including capital contributions (HELOC, Loan). A business plan is a worthwhile effort, because it helps you understand what you don't have figured out yet and other team members you will need.

Happy to answer any specific questions, just PM me.

Rich

@Geoff Cavender  

All the answers you are looking for are already here on BP - you should read these:

How to Effectively Conduct Joint Venture Agreements as a Real Estate Investor

how-do-i-properly-construct-a-purchase-with-a-partnership

create-an-llc-for-first-partnership-best-way-to-do-so

taking-on-partner-s-and-limiting-our-liabilites

If you still have unanswered questions after that, you need specialized help - talk with @Scott Smith .

Thanks @Costin I. !

@Geoff Cavender It sounds like you're off to a great start and have a solid plan for cashflow in place. It's also good from an asset protection standpoint that you're establishing an LLC in advance. The article of mine that Costin linked you to here on BP has some information about forming a venture-specific LLC for joint ventures. That is certainly one smart way to approach this plan, particularly in the early days where minimizing risk is essential.

In my experience, starting out as a Joint Venture is an effective way to team up with another investor. You *could* create a Limited Partnership, but if you're in the U.S., I would still recommend a venture-specific LLC above a Limited Partnership. The venture-specific LLC will offer more liability protections, and you will have the opportunity to craft an Operating Agreement that puts a "clock" on the details of your deal. This Operating Agreement will also spell out important things like how profits and losses are divided. A Series LLC may be a wise idea for you, since you're looking to hold multiple properties in the near future. Generally speaking, we want to have asset protection systems where you have one property per LLC. The Series LLC allows you to do this easily by forming a "Series" (which works like a mini-LLC) for each new asset you acquire. Everything I've said above about LLCs applies to the Series LLC as well. You can pick a state that is friendly to the LLC--and yes, I have some suggestions on that as well--and form it there if your state doesn't have a Series LLC option. If you choose to go this route, make sure you have a registered agent for your out-of-state LLC. That link is for an article I just published here on BP that spells out the details of how you can meet this requirement easily and cheaply.

As always, make sure you have a competent real estate attorney on your side if you choose to follow through with forming any kind of legal entity or agreement (like a JV Agreement or Limited Partnership). That attorney can make sure your interests are represented and that you're getting the arrangement you really want. Beware of "Contracts by Google"!

Thank you guys for all the input I will certainly read the articles you guys have recommended and keep you updated along the way. I know that for sure one snag we have hit is that he doesnt have financing available like I do with the HELCOC. His idea is creating the LLC and then doing a business loan, however he does bring the knowledge and the ability to flip the properties. I bring the real estate license and am willing to help with the work as well. I am just not sure on partnering with someone who doesnt have financing available.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you