Real Estate Agent · Ellwood City, PA · Member since 2020 · 88 posts · 40 votes
Hi everyone,
My wife and I are purchasing our first self storage facility and are partnering with our friend and his wife. My wife and I currently have an LLC, but no purchases with it yet. What would be the best way to partner up?
Should our partners create an LLC too and we'd write up a partnership between the two LLC's? Or should the four of us create a new LLC and split it 25% per person? Are there any benefits to each method? For example, is there less paperwork, more benefits, etc for one way or the other?
The four of us are also planning on buying more facilities together down the road so this would not be a one off deal. Any guidance and advice would be appreciated. Thank you!
@Ryan Alexander All good advice above. The only thing I'll add is to keep in mind how your structure will affect applying for additional loans down the road. If you plan to purchase additional properties, your LLC structure will dictate which members and how many need to be a part of submitting financials for the future loans.
My partner and I each created our own personal LLCs, then organized a partnership LLC with the two personal LLCs as owners. There probably is not a need to have each person establish their own LLC and just make one per couple. It will just cost your more money with more paperwork to deal with.
Our partnership LLC is the "parent" LLC and when we purchase properties, we establish a "subsidiary" LLC owned by the parent LLC. The properties are then owed by the subsidiary. This has been our model and it has worked so far.
Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.
At the beginning, adding more LLCs will not make much of a difference for liability purposes, unless your family LLC is doing other investments apart from your friends'. I would highly recommend speaking with an attorney for a few reasons. First, an LLC with four members needs a robust operating agreement, not something printed off the internet. Second, any LLC with a married couple involved should have a buy-sell agreement in case one family wishes to withdraw or there is a divorce or death somewhere. Last thing a business needs is to have members caught in divorce or probate proceedings.
Thanks, AJ. I think my lawyer just recommended the same as you mentioned. He said to do a limited partnership with the LLC being the general partner and then my wife, our friends and I would be the limited partners. It adds an extra layer of protection. Is that what you guys did exactly?
@Sean Morrison Thanks, Sean. Appreciate the response. I talked to my lawyer yesterday and he's recommending a limited partnership with the LLC being the general partner and my wife, our friends and I are the limited partners. And we'll be doing those documents you described.
@Ryan Alexander My partner and I each have a single-member LLC and these two LLCs own the parent partnership LLC. This parent LLC owns the subsidiary LLCs established in each market we invest in. The subsidiary LLCs are the actual owners of the properties.
@Ryan Alexander All good advice above. The only thing I'll add is to keep in mind how your structure will affect applying for additional loans down the road. If you plan to purchase additional properties, your LLC structure will dictate which members and how many need to be a part of submitting financials for the future loans.