Business Entity Formation for Real Estae Investing
My brother and I are partnering on a real estate investing company. I am looking for advice on what business structures work best for different types of real estate investing, and recommendations on good accountants and attorneys with experience in this field that I could schedule a sit down with. I am in the Oklahoma City area while my brother who I will be working with is in the Memphis area. Will the partners being located in different states complicate things? Any information would be appreciated.
#2 Land & New Construction Contributor
- Developer
- Charlottesville, VA
- 4,387
- Votes |
- 4,755
- Posts
#2 Land & New Construction Contributor
- Developer
- Charlottesville, VA
@Matthew Haralson being in separate states is not an issue. You need to set up an operating company LLC that the two of you will be members. The detail of your partnership will be spelled out in the operating agreement and partnership agreement.
You need to make sure you guys decide on the roles and responsibilities each of you will have and how capital contributions and securing any financing will be handled before you meet with the attorney. You should talk to
Thanks @Greg Dickerson.
@Matthew Haralson, I put together some thoughts on your question that may be helpful to you at https://www.biggerpockets.com/blog/effectively-conduct-joint-venture-agreements-as-a-real-estate-investor. Getting started on the right track will be helpful to maintain a relationship that could benefit you both in the long run. I agree with Greg on the need to communicate, and getting knowledgeable on the subject is a great start!
Thank you, this is great information. We do already have a operating agreement and a business plan in place. We have done extensive research in real estate investing in general and have a few deals we are currently analyzing. I am working on setting up the up the operating company LLC. I am curious as to the different strategies that can be used with business entities as far as limiting liability (I've read it is common to set up multiple LLC's for each property or for sets of properties) or to maximize tax benefits/minimize tax liabilities. Any recommendations in this area?
Thank You,
Matthew Haralson
@Matthew Haralson, here is a graphic we use to show the pieces of Asset Protection.
Each of these tend to be podcasts by themselves. The operating agreement is part of the liability column, and is very helpful to protect relationships by clearly identifying roles, responsibilities and processes to use to operate a LLC. I don't have it listed as "relationship protection" but that is what it often is, and it is good you have one. Property management agreements are also helpful in this regard, and allow you to separate ownership from operations and use an operating LLC to manage multiple properties with different needs that get to compartmentalization. I personally like the lifestyle automation that helps with the ongoing maintenance, so I can live life without distraction.
I am sure many in Bigger Pockets can add their experience in many of these areas.